THE  SOCIAL  UNREST 


©  Underwood  &  L'ndc 


PROMINENT  MEMBERS  OF  THE  NATIONAL  INDUSTRIAL  CONFER- 
ENCE WHICH  MET  AT  WASHINGTON  ON  CALL  OF  PRESIDENT 
WILSON  IN  OCTOBER,  1919. 

(From  left  to  right:  Secretary  Lane,  who  presided;  Judge  Gary;  Mr.  Samuel 
Gompers;  Mr.  Frank  Morrison,  secretary  of  the  American  Federation  of 
Labor;  and  Mr.  John  D.  Rockefeller,  Jr.) 


The  SOCIAL  UNREST 

CAPITAL,  LABOR,  AND  THE 
PUBLIC  IN  TURMOIL 


IN  TWO  VOLUMES 


EDITED  BY 

LYMAN  Pi  POWELL,  D.D.,  LL.D. 


VOLUME  I 


THE  REVIEW  OF  REVIEWS  COMPANY 
NEW  YORK 


UN)  4-1 

•?*7 

v.l 


Copright,  1919 
BY  THE  REVIEW  OF  REVIEWS  Co. 


INTRODUCTION 

The  world  is  in  turmoil.  The  old  order  is  gone.  The 
new  order  seems  to  be  approaching,  but  is  not  yet  here. 
Men's  hearts  are  failing  them  for  fear.  To  many  it  ap- 
pears that  we  are 

"  Wandering  between  two  worlds, — one  dead, 
The  other  powerless  to  be  born." 

Duty  fortunately  is  both  clear  and  imperative.  This  is 
no  time  for  pessimism.  Faintheartedness  is  neither  necessary 
nor  becoming.  Faith  in  the  outcome  of  this  cosmic  travail 
need  suffer  no  eclipse.  All  will  yet  be  well.  "  In  quietness 
and  confidence  shall  be  thy  strength." 

But  to  trust  unfaltering,  men  must  add  the  discerning  and 
the  thoughtful  mind.  They  must  think  through  the  com- 
plications and  details  of  these  anxious  days.  Many-sided 
comprehension  is  inexorably  necessary.  To  neglect  any  sig- 
nificant factor,  any  possibly  determinating  circumstance,  may 
easily  invalidate  conclusions  drawn  with  the  utmost  honesty. 
All  important  phenomena  —  economic,  industrial,  social  — 
must  be  weighed  with  care. 

Never  as  to-day  has  the  public  press  so  faithfully  fulfilled 
its  mission  to  spread  out  before  its  readers  the  news  they 
ought  to  have.  Never  has  responsibility  been  so  keenly 


iv  INTRODUCTION 

realized.  The  very  mass  of  news,  however,  dulls  perception 
and  blocks  judgment.  Elimination,  classification,  intelligent 
comment  are  first  needed. 

This  series,  even  at  the  risk  of  seeming  too  ambitious,  at- 
tempts to  render  such  a  service  to  the  average  American. 
Having  spent  the  last  two  years  in  travelling  round  and 
round  the  country,  observing  and  making  notes,  speaking  and 
writing,  the  editor  is  convinced  that  the  one  hundred  million 
and  more  Americans,  whom  the  Lord  must  love  or  He  would 
not  have  made  so  many  of  them,  can  be  trusted  to  think 
straight  and  think  right  if  without  fear  or  favor  some  of  the 
representative  thought  materials  of  this  time  that  tries  men's 
souls  are  set  before  them  in  due  order.  By  its  success  or 
failure  in  achieving  this  high  purpose  the  series  should  be 
judged. 

With  men  like  Professor  John  B.  Clark,  of  Columbia, 
insisting  that  economic  laws  must  receive  close  attention  and 
with  some  colleges  and  universities  possibly  approaching  the 
complicated  situation  from  a  conventional  point  of  view,  such 
a  series  would  not  challenge  the  interest  of  certain  influential 
thinkers  if  it  failed  to  reckon  with  economic  laws  and  eco- 
nomic reasoning. 

With  numerous  publicists  agreeing  with  the  Honorable 
W.  L.  Mackenzie  King,  the  new  leader  of  the  Liberal  party 
in  Canada  and  one  of  the  foremost  experts  of  the  world  in 
diagnosis  of  the  industrial  dislocations  of  the  time,  to  elim- 
inate from  consideration  practically  all  but  the  underlying 


INTRODUCTION  v 

causes  of  industrial  unrest,  the  evolution  of  industrial  phe- 
nomena, the  functions  of  the  respective  parties  to  industry, 
and  the  essential  features  of  the  industrial  processes  in  use 
on  either  side  of  the  ocean,  it  is  evident  that  the  discussion 
must  roam  farther  afield  than  some  economists  have  in  the 
past  conducted  it. 

One  has  only  to  call  attention  to  the  vast  researches  of  the 
Industrial  Relations  Commission  at  Washington  and  the 
Reports  of  the  Organization  on  Labor  Legislation,  to  the 
output  every  month  of  the  Labor  Review  issued  by  the  De- 
partment of  Labor  under  the  direction  of  Commissioner  Roy 
Meeker  of  the  Bureau  of  Labor  Statistics,  to  the  wealth  of 
contemporaneous  reflection  in  such  journals  as  the  Political 
Science  Quarterly  and  the  Annals  of  the  American  Academy, 
and  to  the  researches  of  the  Rockefeller,  Sage  and  Carnegie 
Foundations  to  illustrate  and  confirm  Mr.  King's  thesis. 

Besides  this,  there  are  some  eminent  writers  in  this  coun- 
try and  in  Europe  who  have  made  such  headway  in  con- 
structive thinking  over  the  whole  economic  and  industrial 
world  that  they  have  passed  out  of  the  range  of  the  older 
economics  into  full  accord  —  to  quote  Dr.  Albert  Shaw  — 
"  with  a  spirit  derived  from  a  broader  science  of  human  so- 
ciety than  that  which  was  understood  by  Ricardo  or  Malthus 
or  even  John  Stuart  Mill." 

When  an  educated  capitalist,  like  Mr.  John  D.  Rocke- 
feller, Jr.,  and  a  conspicuous  leader  of  labor,  like  Mr.  Samuel 
Gompers,  seem  to  be  on  the  way  to  agreement  that  Capital, 


vi  INTRODUCTION 

Management,  Labor  and  the  Public  are  equal  factors  in  in- 
dustrial activity,  perhaps  this  series  may  place  before  the 
American  people  for  their  guidance  in  drawing  conclusions 
many  facts  and  considerations  not  as  yet  found  in  entirety 
elsewhere  and  bearing  directly  on  the  complexities  that  puz- 
zle and  the  anxieties  that  bewilder. 

"  Who  is  sufficient  for  these  things?  "  Nobody.  But  by 
a  discriminating  selection  from  utterances  in  many  fields 
concerned,  by  giving  place  to  conservative  and  liberal  alike 
to  speak  what  he  knows  or  thinks  he  knows,  by  keeping  in 
mind  in  the  development  of  the  series  a  constructive  purpose 
which  will  save  from  any  break  with  the  past,  it  should  be 
possible,  with  the  assistance  of  representative  economists, 
publicists,  statesmen  and  world  leaders  to  lay  before  the 
readers  of  these  books  the  materials  which  will  enable  them 
to  discriminate  between  merely  economic  and  nobly  moral 
values,  between  the  letter  which  killeth  and  the  spirit  which 
giveth  life. 

War,  industrial  and  military,  may  thus  be  made  impos- 
sible. The  standard,  both  of  work  and  health  may  be  raised. 
That  "  sure  road  to  industrial  peace  and  order  in  democ- 
racies," of  which  President  Eliot  loves  to  speak,  may  be 
found,  and  humanity  after  its  recent  agony  of  Gethsemane 
and  its  crucifixion  on  the  cross  of  militarism,  may  have  its 
resurrection  in  that  more  abundant  life  of  which  poets  have 
dreamed  and  for  which  saints  have  prayed. 

LYMAN  P.  POWELL. 


CONTENTS 

CHAPTER  PACK 

INTRODUCTION iii 

Lyman  P.  Powell 

I.     THE  HUMANIZING  OF  THE  OLD   .     .     .,       i 
Albert  Shaw 

II.    WHAT  THE  OLD  REALLY  WAS  ,;     19 

H.  R.  Seager,  T.  N.  Carver,  Morris  Hillquit 

III.  THE  LIMITS  OF  PRODUCTION  ....     27 

George  E.  Roberts 

IV.  THE  FOUR  PARTIES  TO  INDUSTRY  ...     33, 

W.  L.  Mackenzie  King 

V.    THE  COMING  OF  CAPITAL  ....     .     55 

J.  A.  Hobson 

VI.     VARIOUS  CONCEPTIONS  OF  CAPITAL    .      .     59 

R.   T.  Ely,  John  Stuart  Mill,  Adam  Smith, 
W.  H.  Mallock,  Karl  Marx 

VII.     CAPITAL  AS  MONEY 61 

VIII.    THE  NATURE  OF  CREDIT 63 

P.  P.  Wahhtad 


THE  KINDS  OF  CREDIT  .      .     ,.     .      .     .77 

H.  G.  Moulton 

X.     SPECULATION 85 

Harrison  H.  Brace 

XI.    WALL  STREET 89 

Lyman  P.  Powell 
I 


PACK 

97 

121 


.     I2Q 

.   181 


CONTENTS 

CHAPTER 

XII.     BUSINESS  CLEARLY  EXPLAINED     . 

Joseph  French  Johnson 

XIII.  THE  TRUST 

F.   W.   Taussig 

XIV.  BIG  BUSINESS  AND  THE  CITIZEN  . 

Holland  Thompson 

XV.    THE  REMEDY  OF  WRONGS  . 

Theodore  Roosevelt 

XVI.     ROOSEVELT  AND  BUSINESS 189 

Otto  H.  Kahn 

XVII.     ORGANIZED  LABOR 193 

John  Mitchell 

XVIII.    THE  EFFICIENCY  OF  LABOR    ....  209 

Charles  Buxton  Going 

XIX.    CAPITAL  SUBMITS  TWELVE  LABOR  PRO- 
POSALS       233 

The  Capital  Group  of  the  Industrial  Com- 
mission in  session  at  Washington,  October, 
1919 

XX.    THE  REAL  LABOR  PROBLEM     .     .     .     .237 

Nicholas  Murray  Butler 

XXI.     COMPETITION   AS  A   SAFEGUARD  TO  NA- 
TIONAL WELFARE 243 

Talcott  Williams 

XXII.    THE  FIELD  BEFORE  THE  COMMISSION  ON 

INDUSTRIAL  RELATIONS       .     .     .  259 
Paul  U.  Kellogg 

XXIII.  THE  MIDDLEMAN 285 

Albert  W.  Atwood 

XXIV.  THE  WIDENING  VISION 309 

W.  L.  Mackenzie  King,  John  D.  Rockefeller, 
Jr.,  Woodrow  Wilson 


CON  TEN  1  S 

CHAPTEE 

XXV.    MANAGEMENT 

£.  B.  Godwin,  C.  W.  Eliot,  F.  W.  Taussig 

XXVI.    THE  AWAKENING  MIDDLE  CLASS     . 

Thomas  R.  Marshall 


325 


XXVII.     THE  PUBLIC       .      .      .      ...      .      .335 

Leslie  Willis  Sprague 
XXVIII.     SOCIAL  RIGHTS   ......     .     .  339 

George  E.  Roberts 

XXIX.     GOODWILL  TO  MEN       ......  35  1 

John  R.  Commons 

THE   EDITOR  .      .     ...     ...    f.  359 


SOCIAL  UNREST 
I 

THE  HUMANIZING  OF  THE  OLD 

ALBERT  SHAW 

Life  has  presented  itself  for  a  number  of  generations  past 
to  the  great  majority  of  people  in  Europe  and  America  from 
the  economic  standpoint.  To  understand  the  course  of 
things,  we  have  to  revert  to  the  feudal  period  and  to  note 
the  processes  of  change  since  feudalism  began  to  break  down. 
The  economic  emancipation  of  the  ordinary  man  has  been 
the  central  theme  in  the  great  epic  of  the  past  two  centuries. 
Food,  clothing,  shelter,  sickness  and  health,  the  constant 
menace  of  poverty, —  these  have  been  the  matters  that  have 
most  concerned  the  largest  numbers  of  people  in  modern 
times. 

Political  history  has  indeed  been  associated  in  many  ways 
and  at  many  points  with  economic  history ;  but  the  connection 
has  not  at  all  points  or  at  all  moments  been  direct  and  vital. 
Even  when  political  power  by  degrees  moved  down  to  a  level 
where  it  could  be  grasped  by  the  common  man,  he  seldom 
knew  how  to  use  it  to  his  own  immediate  advantage. 

i 


2  SOCIAL  UNREST 

There  were  conditions  existing,  let  us  say,  a  hundred  years 
ago,  that  went  far  to  justify  the  theories  of  what  we  are 
accustomed  to  call  the  "  orthodox  "  political  economy.  The 
great  majority  seemed  to  be  absorbed  in  an  incessant  struggle 
for  existence.  The  motive  that  controlled  occidental  man- 
kind —  on  the  plane  of  the  masses  —  was  fear  of  hunger  or 
dread  of  an  ever-menacing  status  of  pauperism.  The  wolf 
was  always  at  the  door.  Even  on  the  higher  plane,  the 
controlling  motive  was  said  to  be  "  enlightened  self-interest," 
as  against  the  unenlightened  kind  that  impelled  the  wage- 
earners.  The  workers  carried  on  the  struggle  subject  to 
what  was  known  as  the  "  iron  law  of  wages,"  which  meant 
a  minimum  wage  based  upon  the  lowest  amount  that  would 
provide  for  the  subsistence  of  the  worker  and  the  mainte- 
nance of  a  working  class. 

All  the  economic  processes  were  subject  to  the  "  law  of 
supply  and  demand."  Labor  was  a  commodity  to  be  bought 
in  the  cheapest  market ;  and  the  labor  of  women  and  chil- 
dren was  to  be  employed  as  a  check  upon  the  tendency  of 
men's  wages  to  resist  the  "  iron  law."  Steam  power  and 
rail  transportation  had  destroyed  the  old  guilds  of  handi- 
craftsmen ;  and  the  factory  system  had  arisen,  along  with  its 
concomitant  of  the  overcrowded  modern  industrial  town. 

It  is  true  then  that  the  political  economy  of  Adam  Smith, 
and  of  his  successors  for  half  a  century,  was  not  far  wrong 
in  the  fundamental  assumption  that  the  ordinary  man  was 
to  be  regarded  as  an  economic  instrument,  impelled  by  the 


THE  HUMANIZING  OF  THE  OLD  3 

supreme  necessity  of  earning  his  living  under  competitive 
conditions.  In  earlier  industry,  the  capitalist  had  played  a 
relatively  small  part.  There  was  no  gulf  between  the  mas- 
ter and  his  journeymen;  they  all  worked  together,  and  their 
skill  was  a  more  important  matter  than  the  investment  in 
the  tools  of  their  trade.  But  with  the  massing  of  power- 
driven  machinery  in  factories,  and  with  the  new  kinds  of 
trade  created  by  railways  and  steamships,  capital  became 
a  thing  of  supreme  importance, —  a  thing  so  dominant  that 
the  economic  society  which  it  governed  was  more  essential 
and  vital  than  the  society  of  politics  or  that  of  organized 
religion. 

When  the  historian  of  the  future  looks  at  realities  through 
the  perspective  of  clearer  skies,  he  will  discover  the  great 
part  played  by  the  forces  of  Capital  in  the  shaping  of  human 
society  through  the  Nineteenth  Century ;  and  he  will  declare 
that  it  was  a  hard  part,  under  cold  and  repellent  rules  of 
conduct.  Yet  he  will  also  find  that  it  was  upon  the  whole 
—  this  part  played  by  capital  —  a  thing  of  almost  measure- 
less beneficence  in  its  results. 

At  the  beginning  of  the  Nineteenth  Century  almost  every- 
body was  poor  because  there  was  little  wealth.  It  was  not 
a  question  of  distribution.  There  were  a  few  great  aristo- 
crats with  landed  estates  and  with  tenants  and  laborers  liv- 
ing under  surviving  conditions  resembling  those  of  the  feudal 
period.  There  were  some  prosperous  merchants  and  ship- 
owners, and  a  very  few  rich  money-lenders  who  were  laying 


4  SOCIAL  UNREST 

foundations  for  modern  banking  success  in  the  Napoleonic 
period.  But  almost  everyone,  in  England,  France  and  Ger- 
many, as  well  as  in  our  young  Republic  of  America,  was 
obliged  to  live  in  a  way  that  we  should  regard  as  indicating 
poverty. 

It  was  the  mission  of  Capital  to  create  abundance.  There 
could  be  no  marked  advance  in  the  condition  of  the  average 
man  until  the  organization  of  facilities  for  producing  and 
distributing  supplies  had  vastly  increased  the  output,  as  meas- 
ured against  the  day's  work.  There  came  a  time  when  cap- 
ital itself  became  more  abundant;  when  new  capital  com- 
peted with  old  capital;  when  better  machinery  doubled  or 
quadrupled  the  efficiency  of  the  worker;  and  when  compet- 
ing emploj'ers  began  to  bid  for  labor  just,  as,  previously,  the 
laborers  had  competed  with  one  another  for  jobs. 

Then  there  emerged  clearly  the  conception  of  advance- 
ment for  the  worker  through  a  new  kind  of  principle,  to 
supersede  the  "  Iron  Law  of  Wages."  The  new  principle 
could  be  stated  in  the  phrase,  "  The  Standard  of  Living." 
This  expressed  a  certain  hopeful  growth  in  the  complexity 
of  the  common  man's  interests.  He  was  no  longer  merely 
the  labor  unit,  exclusively  impelled  by  the  economic  motive 
in  the  bare  struggle  for  existence. 

In  those  old  days  the  factory  workers  had  often  been  em- 
ployed sixteen  hours  or  more  in  the  day;  and  this  was  true 
also  of  women  and  children.  With  the  growth  of  labor 
efficiency  came  the  determination  to  capture  some  of  the 


THE  HUMANIZING  OF  THE  OLD  5 

higher  possibilities  of  life;  and  so  came  the  movement  for 
labor  organization,  for  shorter  hours,  for  better  conditions. 

The  appalling  death  rates  of  factory  towns  grew  less,  as 
the  conditions  of  work  and  life  became  steadily  better.  The 
ruthlessness  of  the  capitalistic  system  was  resulting  in  a  vast 
increase  in  wealth;  and  nothing  could  prevent  the  lowering 
of  the  prices  of  commodities  on  the  one  hand,  and  the  in- 
crease in  wages  on  the  other.  Sooner  or  later,  wealth  was 
bound  to  go  to  those  whose  efforts  had  produced  it;  and 
this  process  of  amelioration  was  to  be  the  more  rapid  as  the 
standards  of  life  came  to  be  affected  by  mental  and  moral 
influences. 

And  here  we  find  the  mitigations  wrought  by  the  develop- 
ment of  religious  and  ethical  motives,  and  by  the  uplifting 
value  of  democracy  and  popular  education.  Even  without 
schools,  the  cheapness  of  printing  would  have  disseminated 
the  reading  habit,  especially  in  communities  where,  as  in 
England  and  the  United  States,  the  influences  of  religion 
were  all  in  the  direction  of  mental  freedom  and  wide  intelli- 
gence. 

Thus  the  life  which  at  the  beginning  of  the  Nineteenth 
Century  had  so  largely  meant  the  struggle  for  existence, 
had  constantly  improved  until  the  individual  found  new  and 
complex  interests  growing  out  of  his  relationships  with  his 
fellows.  In  the  making  of  America,  there  had  been  a  high 
degree  of  individualism  created  in  the  sheer  loneliness  of  the 
work  of  clearing  the  forests  and  settling  the  wilderness. 


6  SOCIAL  UNREST 

The  average  conditions  were  little  removed  from  what  we 
should  now  call  poverty;  that  is  to  say,  life  was  exceedingly 
toilsome,  and  its  material  rewards  were  scanty.  But  strong 
personality  was  often  created  under  the  conditions  which 
made  each  man's  struggle  for  existence  so  largely  a  grappling 
with  the  primitive  forces  of  nature,  rather  than  a  competing 
for  jobs  as  in  the  factory  towns. 

In  America  even  more  than  in  Europe  for  a  long  time  it 
was  the  general  belief  that  the  economic  organism  should 
function  of  itself,  running  parallel  with  the  political  struc- 
ture but  with  comparatively  little  contact  and  almost  no 
merging.  In  the  political  field,  the  average  man  had  preju- 
dices or  convictions  which  attached  him  to  a  party.  He  was 
not  in  the  habit  of  thinking  of  political  control  as  chiefly 
a  thing  to  be  exercised  in  the  economic  sphere.  He  thought 
of  Government  rather  as  a  negative  than  a  positive  instru- 
mentality. 

In  the  local  sense,  after  a  time  he  became  willing  to  pro- 
vide for  a  universal  system  of  common  schools  through  exer- 
cise of  the  taxing  power  of  the  State.  But  in  general  the 
appeal  to  political  authority  as  an  agency  through  which  to 
secure  economic  and  social  well-being  was  not  in  accordance 
with  the  American  belief  in  private  initiative.  Nevertheless, 
as  the  Nineteenth  Century  advanced,  we  were  constantly 
shifting  ground  as  regards  the  relationships  of  Government 
to  the  welfare  of  the  individual. 


THE  HUMANIZING  OF  THE  OLD  7 

We  had  always  conceded,  for  instance,  the  duty  of  the 
State  to  furnish  protection  in  the  exercise  of  police  power. 
But  society  had  discovered  new  enemies,  and  this  meant  vast 
new  developments  in  the  exercise  of  the  protective  function. 
It  was  one  thing,  at  the  beginning  of  the  Nineteenth  Cen- 
tury, to  protect  the  townsman  against  burglars,  and  to  keep 
the  streets  clear  of  rioters.  It  was  a  very  different  matter, 
at  the  end  of  the  Century,  to  protect  communities  against 
the  far  more  dangerous  enemies  that  had  been  discovered  in 
the  microscopic  organisms.  Early  in  the  Century  the  house- 
holder had  dug  his  own  well  or  drawn  from  the  village 
pump.  Later,  the  common  water-supply  became  necessary ; 
and  there  came  into  use  all  the  administrative  mechanisms, 
one  following  another,  having  to  do  with  safeguards  which 
the  individual  could  not  supply  for  himself  against  what 
science  had  now  discovered  to  be  preventable  evils. 

The  applications  by  Government  of  these  new  remedies 
against  ancient  evils  had  immensely  increased  the  efficiency 
of  the  individual.  The  average  loss  of  labor  through  sick- 
ness was  reduced;  the  average  length  of  working  years  was 
much  increased ;  enhanced  capacity  gave  the  reward  of  larger 
leisure,  and  of  more  opportunity  for  bringing  into  play  the 
motives  of  the  complex  life. 

Thus  the  ordinary  man,  who  only  a  century  earlier  had 
been  so  much  absorbed  in  the  narrowly  economic  task  of 
making  a  living,  was  now  a  member  of  human  society  with 


8  SOCIAL  UNREST 

a  variety  of  relationships  besides  those  involved  in  the  proc- 
esses upon  which  the  orthodox  economists  had  built  up  their 
so-called  "  dismal  science." 

Men's  motives  and  points  of  view  were  shifting  and  chang- 
ing, although  they  were  not  in  the  habit  of  recognizing  the 
changes.  Thus  thousands  of  capitalists  were  no  longer 
wholly  dominated  by  the  motive  of  securing  the  largest  pos- 
sible amount  of  the  gross  product  as  the  employers'  share. 
They  were  also  thinking  of  business  as  a  science  and  a  pro- 
fession, and  as  an  opportunity  for  usefulness.  The  qualities 
of  mind  and  spirit  which  had  become  dominant  in  them  had 
unfitted  them  for  the  part  that  orthodox  political  economy 
would  have  demanded  that  they  should  play.  They  had  be- 
come in  that  sense  un-orthodox,  while  living  fully  in  accord 
with  a  new  spirit  derived  from  a  broader  science  of  human 
society  than  that  which  was  understood  by  Ricardo,  or  Mal- 
thus  or  even  by  John  Stuart  Mill. 

The  sphere  of  politics,  furthermore,  was  becoming  far 
more  closely  identified  with  the  operations  of  the  economic 
organism.  The  authority  of  law  was  being  evoked  to  estab- 
lish standards;  as,  for  instance,  the  conditions  affecting  rail- 
way employment;  the  conditions  affecting  women  and  chil- 
dren in  factories ;  compulsory  education  of  children,  in  order 
that  citizenship  might  be  more  intelligent  in  its  quality,  and 
so  on. 

The  political  authority  was  in  many  ways  becoming  the 
regulator  of  the  industrial  and  economic  life.  It  was  not 


THE  HUMANIZING  OF  THE  OLD  9 

in  any  large  sense  absorbing  or  superseding  that  mechanism. 
In  some  countries  railway  transportation  had  become  govern- 
mentalized,  and  other  functions  had  been  assumed  so  that 
the  State  itself  was  to  a  considerable  extent  engaged  in 
capitalistic  production.  And  in  some  countries  this  had  been 
particularly  true  of  the  local  subdivisions  of  the  State,  where 
many  services  of  supply  had  become  municipalized.  But  in 
America  the  State  was  called  upon  to  secure  favorable  con- 
ditions for  social  and  economic  progress,  but  not  to  assume 
the  functions  of  the  industrial  employer. 

In  1917,  however,  we  entered  upon  a  great  conflict  which 
required  at  once  the  services  under  arms  of  millions  of  young 
men,  and  also  the  services  in  shops  and  fields  of  millions 
more  who  must  produce  food  and  war  supplies  with  direct 
reference  to  the  one  all-embracing,  Government-managed  en- 
terprise of  carrying  on  a  modern  war. 

The  whole  system  of  economic  life  as  it  had  previously 
existed  now  became  subjected  to  tremendous  displacements. 
The  great  essentials  of  industry, —  such  as  coal,  copper,  iron 
ore,  petroleum, —  came  under  Government  control,  as  did  a 
very  great  part  of  all  manufacturing  industry.  The  prices 
of  food  and  many  commodities  were  publicly  regulated ;  wage 
scales  were  adjusted  by  Government  authority;  and  the  daily 
life  of  one  hundred  million  people  was  materially  affected 
in  its  methods  and  its  points  of  view,  to  such  an  extent  that 
the  changes  were  universally  felt  and  recognized. 

What  was  true  in  our  own  experience  was  true  in  some 


10  SOCIAL  UNREST 

of  the  European  countries  to  an  extent  even  more  sweeping 
and  profound.  In  the  United  States,  almost  5,000,000  men 
were  taken  from  their  callings  into  the  uniformed  services 
of  the  army  and  navy.  Life  for  them  became  subject  to 
method  and  standard,  and  wholly  non-competitive.  They 
were  fed,  sheltered  and  clothed  under  terms  of  a  large  sys- 
tem ;  while  their  training  and  effort  were  directed  to  a  com- 
mon public  end, —  cooperative  in  the  full  sense.  Most  of 
these  men  have  returned  during  the  year  1919  to  member- 
ship in  the  general  community;  but  the  effect  of  their  expe- 
rience under  the  unified  and  simple  conditions  of  cooperation 
in  great  camps,  must  have  influences  of  a  modifying  kind 
upon  the  course  of  American  life  in  the  future. 

It  became  necessary  to  divert  other  millions  into  war  in- 
dustry, and  to  provide  certain  standards  which  perforce  have 
entered  into  the  consciousness  of  all  those  who  have  expe- 
rienced them.  These  standards  have  not  all  been  alike,  but 
they  have  been  based  upon  certain  views  or  tendencies. 
Thus  there  was  recognized,  in  spite  of  the  emergency  of  war, 
the  principles  of  human  worth  and  dignity  in  respect  to  all 
the  conditions  surrounding  industry.  The  Government 
could  have  conscripted  shipbuilders  and  gunmakers,  just  as 
it  drafted  men  for  the  training  camp ;  and  it  could  have  held 
down  expenditure  by  a  policy  of  low  wages  and  long  hours. 
It  decided,  however,  in  the  thick  of  war,  to  establish  the 
rules  of  short  hours,  high  wages,  and  —  insofar  as  possible 


THE  HUMANIZING  OF  THE  OLD  11 

—  of  comfortable  housing  and  the  safeguards  of  good  sani- 
tary and  moral  environment. 

As  an  effect  of  this  intense  experience  of  war,  many  things 
were  brought  to  the  point  of  a  definite  decision  where  other- 
wise it  might  have  required  several  decades  before  a  like 
verdict  could  have  been  reached.  Thus  it  was  virtually  de- 
cided that  the  larger  highways  and  means  of  distribution  and 
communication  were  to  pass  from  the  old  sphere  of  com- 
petitive capitalistic  exploitation  to  a  status  essentially  public, 
with  the  principles  of  unity  and  cooperation  substituted  for 
those  of  diversity  and  competition. 

Railways,  waterways,  the  main  highways  for  motorized 
traffic  —  these  are  all  to  be  thrown  into  association  with  one 
another,  for  convenient  and  economical  public  service.  The 
private  capital  which  has  created  transportation  systems  is 
not  to  be  confiscated,  but  what  had  been  of  necessity  de- 
veloped by  private  energy  is,  in  the  new  era,  to  pass  over 
in  some  form  or  other  to  the  sphere  of  public  control.  I 
am  not  alluding  to  this  difficult  subject  of  the  railways  with 
the  intention  of  supporting  one  solution  or  another  of  the 
immediate  problems  that  are  before  us.  I  am  merely  point- 
ing out  great  transitions  in  our  economic  life,  as  we  pass 
from  the  old  period  through  the  war  experiences  to  the  new 
epoch  upon  which  we  are  just  beginning  to  enter. 

One  might  easily  yield  to  the  temptation  to  theorize  and 
to  speculate,  in  discussing  the  social  and  economic  as  well 


12  SOCIAL  UNREST 

as  the  political  trends  that  are  destined  to  make  these  new 
conditions.  That  we  must,  henceforth,  work  out  our  own 
personal  problems  in  this  new  atmosphere  of  society  lends 
an  added  eagerness  to  our  inquiries. 

It  is  sometimes  easier  to  understand  our  own  conditions 
by  turning  away  from  things  too  near  at  hand,  and  too  fa- 
miliar for  full  comprehension,  to  those  of  some  other  com- 
munity or  country.  In  England,  for  example,  the  course  of 
political  and  social  progress  through  more  than  a  hundred 
years  has  been  comparatively  easy  to  follow ;  and  the  tenden- 
cies to-day,  as  the  war  period  closes  and  the  new  era  begins, 
will  undoubtedly  teach  us  something  of  what  lies  in  our  own 
near  future. 

In  England,  the  population  itself  is  now,  for  the  first  time, 
recognized  by  the  political  and  intellectual  leaders  as  the 
country's  principal  asset.  Human  conservation  is  perceived 
as  having  the  first  claims  upon  statesmanship.  Thus  the 
educational  system  is  to  be  transformed  from  its  very  founda- 
tions, under  a  new  law  that  aims  to  throw  as  much  care 
and  protection  around  the  ordinary  child  as  the  expert  live- 
stock farmer  would  give  to  his  most  valuable  animals. 

This  would  seem  to  be  an  obvious  enough  conception,  yet 
it  is  a  new  thing  as  a  dominating  motive  in  the  legislation 
of  a  great  country  like  England.  Every  child  is  to  be 
brought  under  the  protection  of  society  as  regards  its  oppor- 
tunities for  physical  well-being  as  well  as  for  mental  and 
moral  training.  Heretofore,  the  correctives  of  medical  or 


THE  HUMANIZING  OF  THE  OLD  13 

surgical  care, —  the  attention  to  defective  eyes  and  other 
impairments, —  have  all  been  left  to  the  volition  of  an  un- 
trained and  ignorant  parenthood.  Henceforth  the  state  is 
to  meet  this  situation ;  and  the  new  generation  will  be  trans- 
formed in  consequence.  Furthermore,  there  is  to  be  uni- 
versal schooling,  not  on  traditional  plans,  but  of  a  new  kind 
that  is  intended  to  fit  each  child  for  his  place  in  the  com- 
munity in  the  sense  of  leading  him  into  a  useful  vocation, 
and  also  in  the  sense  of  giving  him  his  share  in  common 
tasks  such  as  a  democratic  self-government,  and  in  the  ra- 
tional enjoyments  of  life. 

The  health  and  efficiency  of  the  whole  nation,  it  is  argued, 
are  to  be  enhanced  by  the  establishment  of  a  national 
ministry  of  health  as  a  cabinet  department.  The  statesman- 
ship of  Great  Britain  has  seen  a  new  vision,  furthermore, 
of  the  essential  dignity  of  the  family  and  the  household. 
There  is  to  be  a  standard  set  for  human  habitations.  A  half- 
million  new  houses  are  to  be  built  as  a  mere  beginning  to- 
ward the  rehousing  of  all  the  millions  of  people  whose  homes 
are  not  sanitary  and  are  lacking  in  the  number  of  rooms, 
the  air  capacity,  and  the  lighting,  that  go  with  the  require- 
ments of  decency  that  have  at  last  been  given  recognition 
and  acceptance. 

There  are  to  be  standards  in  England  having  to  do  with 
the  hours  of  labor  and  the  conditions  of  employment.  The 
movement  for  shorter  hours  has  been  making  progress  for 
many  years,  as  everyone  knows.  As  an  outcome  of  the  war 


14  SOCIAL  UNREST 

experience,  the  short-hour  standards  are  to  have  not  excep- 
tional but  universal  application.  The  motive  underlying 
this  movement  is  not,  as  some  people  suppose,  a  discreditable 
one.  It  bears  no  relation  to  idleness  or  thriftlessness.  Gen- 
erally speaking,  in  all  English  industries  or  communities 
where  short  hours  prevail,  the  effect  is  seen  in  a  great  va- 
riety of  desirable  directions.  Workingmen's  cottages  are 
surrounded  by  neatly  kept  gardens  of  useful  vegetables  and 
bright  flowers.  Public  libraries  are  well  patronized,  the 
newspapers  are  universally  read,  and  the  workingmen  enter 
into  the  varied  activities  of  a  worthy  kind  that  build  up 
community  life. 

In  the  new  conception  of  England  that  has  been  accepted 
by  the  leaders  of  all  political  parties,  there  is  to  be  a  great 
improvement  and  development  of  the  nation's  landed  domain. 
Without  any  sacrifice  of  the  beauty  and  charm  of  rural  Eng- 
land as  developed  under  the  conditions  of  the  past,  there 
can  be  a  transforming  increase  in  agricultural  production. 
This  was  shown  under  the  stimulus  of  the  war.  Wholly 
new  methods,  however,  are  to  be  used  to  redeem  and  improve 
the  land,  and  to  make  it  profitable  and  pleasant  for  several 
times  as  many  people  to  be  engaged  in  rural  pursuits  as  here- 
tofore. Great  projects  are  on  foot,  also,  for  improving 
town  life;  and  there  is  to  be  an  interchange  of  advantages 
so  that  what  is  best  in  the  opportunities  of  the  town  may 
not  be  denied  to  the  farm  worker,  while  —  on  the  principles 
of  the  "  garden  city  " —  the  healthful  satisfactions  of  coun- 


THE  HUMANIZING  OF  THE  OLD  15 

try  life  may  be  more  available  for  town-dwellers  and  indus- 
trial workers. 

There  is  also  evident  in  England  a  new  conception  of  the 
relationships  between  the  employing  class  and  the  working- 
man.  In  every  possible  way  the  young  worker  is  to  be 
trained  and  advanced.  He  is  not  to  be  kept  down,  but 
rather  is  to  be  encouraged  to  study  and  to  make  himself 
proficient,  so  that  no  needless  barriers  may  lie  between  him 
and  the  functions  of  management  and  control.  Shops  and 
factories  are  to  be  not  merely  places  where  men  work  and 
earn  wages,  but  are  also  to  be  scenes  where  young  workmen 
may  be  taught  and  trained,  and  where  their  proper  ambition 
may  be  kept  alive. 

I  am  hinting  only  at  the  applications  which  are  to  be 
given  in  England  to  this  spirit  of  the  new  period.  The  re- 
turning soldier,  if  disabled  in  any  way,  finds  ready  for  him  a 
system  of  vocational  instruction  which  is  to  lift  him  above 
dependency,  and  make  him  a  valuable  member  of  the  work- 
ing community. 

The  new  principles,  and  the  new  laws  in  conformity  with 
such  conceptions,  will  not  be  found  working  like  magic  in 
all  their  parts  from  the  very  beginning.  But  they  promise 
to  bring  about  a  transformation  that  would  seem  wellnigh 
incredible  when  compared  with  conditions  that  prevailed 
less  than  half  a  century  ago.  One  reads  of  strikes  and  dis- 
orders ;  but  these  are  only  surface  symptoms,  the  passing  daily 
phenomena  that  n?ark  some  of  the  more  immediate  aspects 


16  SOCIAL  UNREST 

of  the  great  transition.  The  thing  that  is  coming  to  pass 
does  not  mean  violence  or  disorder,  but  rather  a  greater 
social  stability  than  has  been  known  since  the  Middle  Ages. 

The  trends  that  are  so  obvious  in  England  are  less  easily 
discerned  in  our  vast  country,  with  its  forty-eight  states  and 
its  more  diverse  economic  and  political  conditions.  But  in 
the  last  analysis  the  course  of  things  will  not  be  greatly  dis- 
similar. The  motives  and  objects  of  statesmanship  will  be 
directed  increasingly  towards  the  improvement  of  economic 
life  and  social  conditions. 

It  is  not  my  object  to  catalogue  specific  things,  but  to 
illustrate  a  tendency.  We  shall  endeavor  through  wiser 
methods  of  education  to  make  the  individual  more  valuable 
to  himself  and  more  useful  to  society. 

In  the  stress  of  the  War  Period,  we  were  compelled  to 
apply  enormous  resources  of  labor  and  materials  to  the  re- 
quirements of  the  new  kind  of  war.  To  obtain  these  re- 
sources quickly  the  Government  had  to  use  the  instrument 
of  credit  on  a  vast  scale,  and  to  exercise  its  power  of  taxa- 
tion as  never  before.  Within  a  period  measured  by  months, 
we  obtained  universal  acceptance  of  methods  of  taxation 
which  extreme  socialistic  theorists  supposed  we  might  apply 
perhaps  a  hundred  years  hence.  Private  wealth  henceforth 
is  at  the  service  of  the  community  without  protest. 

The  economic  motive  on  the  part  of  capitalists  and  em- 
ployers is  undergoing  an  amazing  modification.  Individ- 


17 

uals  in  the  future,  relatively  speaking,  will  be  less  wealthy; 
and  the  community,  in  the  supply  of  common  needs,  will 
be  more  munificent.  There  will  be  private  libraries,  but 
they  will  not  compare  with  those  accessible  to  the  public. 
There  will  be  private  picture  galleries,  but  the  best  in  art 
will  be  for  the  pleasure  and  instruction  of  everybody. 

With  the  modification  of  motives  on  the  part  of  the  em- 
ploying class,  there  is  to  come  a  corresponding  acceptance  of 
social  responsibility  by  members  of  the  working  class. 
When  all  the  opportunities  of  life  are  spread  before  them  — 
when  the  great  struggle  for  practical  justice  and  equality  is 
really  won  on  the  battlefield  of  the  day's  work,  as  it  was 
won  earlier  in  the  struggle  for  political  equality  —  we  shall 
find  a  wholly  new  kind  of  conservatism  growing  up  where 
once  it  was  supposed  that  a  reckless  and  destructive  radi- 
calism might  bring  menace  to  some  of  the  best  legacies  of 
civilization. 

In  this  new  period,  let  us  hope  and  believe,  bread  will  be 
plentiful  enough  so  that  the  common  man  may  not  have  to 
feel  that  man  lives  by  bread  alone;  that  is  to  say,  by  the 
concentration  of  effort  upon  the  securing  of  his  livelihood. 
Science  is  to  solve  the  problems  of  economic  abundance,  and 
no  small  part  of  the  application  of  science  is  to  be  directed 
toward  the  mental  and  physical  efficiency  of  the  worker. 

The  dread  of  poverty  is  to  be  removed  by  those  principles 
of  social  insurance  to  which  we  have  already  committed 


i8  SOCIAL  UNREST 

ourselves  on  so  large  a  scale  in  the  War  Risk  Insurance  pro- 
vided for  the  soldiers.  The  new  era  is  to  justify  enthusiasm 
and  unselfishness,  as  in  no  former  period. 

The  motive  of  "  enlightened  self-interest  "  may  once  have 
served  a  sound  purpose  in  the  creation  of  the  modern  instru- 
ments of  production.  But  the  citizen  of  the  new  era  must 
prepare  as  definitely  for  the  demands  made  upon  him  by  his 
membership  in  society  as  for  the  demands  of  what  used  to  be 
regarded  as  the  dominating  private  concerns  of  life.  He 
must  work  with  his  fellows,  subordinate  his  private  aims, 
and  find  a  larger  personal  liberty  as  the  outgrowth  of  a  con- 
dition that  lifts  the  masses  of  men  into  the  enjoyments  and 
enrichments  which  were  once  those  of  the  privileged  few. 


II 


Our  ancestors  lived  a  mere  animal  existence.  Each  man 
was  first  for  himself,  then  his  family,  then  the  tribe.  Even 
as  recently  as  1776  Adam  Smith  wrote:  "The  only  trades 
which  it  seems  possible  for  a  joint  stock  company  to  carry 
on  successfully,  without  an  exclusive  privilege,  are  those  of 
which  all  the  operations  are  capable  of  being  reduced  to  such 
uniformity  as  admits  of  little  or  no  variation."  It  was  in 
1902  that  "  an  employer  and  an  employee  who  had  sustained 
that  relationship  for  seventeen  years  met  for  the  first  time  " 
in  a  Chicago  settlement.  As  recently  as  September,  1919, 
a  rudimentary  survival  appeared  of  this  primeval  economic 
isolation  when  an  Italian  wage  earner  who  had  worked  on 
the  property  of  the  same  New  York  suburbanite  regularly 
for  five  years  was  unable  to  give  the  name  of  his  employer. 
The  economic  man  is  not  a  figment  of  imagination.  He  is 
simply  the  conventional  business  man  who  has  —  as  Professor 
Seager  points  out  —  at  least  four  distinguishing  traits : 

1 i )  The  business  man  pursues  his  own  interest  in  his  busi- 
ness dealings  and   assumes  that   others  will   do   the  same. 
This  does  not  mean  that  he  is  steeped  in  selfishness,  but 
simply  that  from  his  point  of  view  "  business  is  business," 
not  play  nor  philanthropy,  and  that  he  prefers  to  keep  his 
getting  separate  and  distinct  from  his  giving. 

(2)  In  judging  of  his  own  interest  the  business  man 

19 


20  SOCIAL  UNREST 

thinks  of  himself  not  as  an  isolated  individual,  but  as  a  mem- 
ber of  different  social  groups,  of  which  the  family  is  by  far 
the  most  important.  He  works  not  for  himself  alone,  but 
for  his  family,  his  church,  his  union,  or  club,  and  his  coun- 
try. In  different  relations  and  at  different  times  he  identi- 
fies his  interest  with  the  interests  of  these  organizations. 
For  his  family  the  business  man  will  sacrifice  as  much  or 
more  than  he  will  for  himself  alone. 

(3)  He  desires  to  be  financially  independent.     His  ambi- 
tion is  to  stand  on  his  own  feet,  to  make  his  own  way  and, 
when  he  accepts  assistance,  to  give  an  adequate  return  for  it. 

(4)  He  is  controlled  in  his  business  dealings  by  the  code 
of  business  morality  that  pertains  to  his  class.     As  there  is 
"  honor  even  among  thieves,"  so  there  are  special  standards 
that  are   accepted   and   lived   up   to   by   different   business 
classes.     These  standards  are  not  as  high  as  would  be  desir- 
able, but  they  are  higher  than  current  criticisms  of  business 
morality  might  lead  one  to  think.     To  be  maintained,  how- 
ever, in  communities  where  class  barriers  are  constantly  giv- 
ing way,  such  standards  have  often  to  be  reinforced  by  legal 
enactments. 

These  four  characteristics  of  the  business,  or  economic, 
man  are  readily  explained  by  reference  to  the  evolutionary 
process  which  has  brought  industrial  society  to  its  present 
stage  of  development.  Self-interest  as  a  dominant  motive, 
for  example,  is  the  direct  fruit  of  that  struggle  for  existence 
which  is  still  in  progress  and  which  makes  self-preservation 


WHAT  THE  OLD  REALLY  WAS  21 

the  first  law  of  nature  to  every  organic  species.  In  the  case 
of  men,  religious  and  other  influences  have  tempered  self- 
seeking  with  consideration  for  others,  but  it  still  plays  the 
chief  role  in  shaping  human  conduct.1 

But  self-interest  involves  struggle  and  in  all  the  history  of 
the  world  man  has  had  to  struggle  for  a  living  and  to  bring 
himself  into  harmony  with  his  surroundings.  Says  Pro- 
fessor Carver: 

The  fact  that  there  are  human  wants  for  whose  satisfac- 
tion nature  does  not  provide  in  sufficient  abundance  —  in 
other  words,  the  fact  of  scarcity  —  signifies  that  man  is,  to 
that  extent  at  least,  out  of  harmony  with  nature.  The  de- 
sire for  fuel,  for  clothing,  and  for  shelter  grows  out  of  the 
fact  that  the  climate  is  more  severe  than  our  bodies  are  fitted 
to  endure,  and  this  alone  argues  a  very  considerable  lack  of 
harmony.  The  lack  is  only  emphasized  by  the  fact  that  it 
is  necessary  for  us  to  labor  and  to  endure  in  order  to  pro- 
vide ourselves  with  these  means  of  protecting  our  bodies 
against  the  rigors  of  nature.  That  labor  also  which  is  ex- 
pended in  the  production  of  food  means  nothing  if  not  that 
there  are  more  mouths  to  be  fed,  in  certain  regions  at  least, 
than  nature  has  herself  provided  for.  She  must  therefore  be 
subjugated  and  compelled  to  yield  larger  returns  than  she  is 
willing  to  do  of  her  own  accord.  And  that  expanding 
multitude  of  desires,  of  appetites,  and  of  passions  which  drive 
us  as  with  whips;  which  send  us  to  the  ends  of  the  earth 

1  Henry  R.  Seager:  "Economics,"  Briefer  Course,  p.  4. 


22  SOCIAL  UNREST 

after  gewgaws  with  which  to  bedeck  our  bodies  and  after 
new  means  of  tickling  the  five  senses;  which  make  us  strive 
to  outshine  our  neighbors,  or  at  least  not  to  be  outshone  by 
them  —  these  even  more  than  our  normal  wants  show  how 
widely  we  have  fallen  out  of  any  natural  harmony  which 
may  supposedly  have  existed  in  the  past. 

Viewed  from  this  standpoint,  the  whole  economic  strug- 
gle becomes  an  effort  to  attain  to  a  harmony  which  does  not 
naturally  exist.  As  is  well  known,  the  characteristic  differ- 
ence between  the  non-economizing  animals,  on  the  one  hand, 
and  man,  the  economizer,  on  the  other,  is  that  in  the  process 
of  adaptation  the  animals  are  possibly  adapted  to  their  en- 
vironment, whereas  man  assumes  the  active  role  in  attempt- 
ing to  adapt  his  environment  to  himself.  If  the  climate  is 
cold,  animals  must  develop  fur  or  blubber,  but  man  builds 
fires,  constructs  shelters,  and  manufactures  clothing.  If 
there  are  enemies  to  fight  against,  the  animals  must  develop 
claws  or  fangs,  horns  or  hoofs,  whereas  man  makes  bows 
and  arrows,  or  guns  and  ammunition.  The  whole  evolu- 
tionary process,  both  passive  and  active,  both  biological  and 
economic,  is  a  development  away  from  less  toward  greater 
adaptation,  from  less  toward  greater  harmony  between  the 
species  and  its  environment. 

That  phase  of  the  disharmony  between  man  and  nature 
which  takes  the  form  of  scarcity  gives  rise  also  to  a  dis- 
harmony between  man  and  man.  Where  there  is  scarcity 
there  will  be  two  men  wanting  the  same  thing;  and  where 


WHAT  THE  OLD  REALLY  WAS  23 

tvvo  men  want  the  same  thing  there  is  an  antagonism  of 
interests.  Where  there  is  an  antagonism  of  interests  be- 
tween man  and  man  there  will  be  questions  to  be  settled, 
questions  of  right  and  wrong,  of  justice  and  injustice;  and 
these  questions  could  not  arise  under  any  other  condition. 
The  antagonism  of  interests  is,  in  other  words,  what  gives 
rise  to  a  moral  problem,  and  it  is,  therefore,  about  the  most 
fundamental  fact  in  sociology  and  moral  philosophy.2 

But  Mr.  Hillquit  sees  only  war  in  the  economic  world. 

There  is  war  between  and  among  the  classes.  War, 
sometimes  overt  and  violent,  sometimes  concealed  and  even 
unconscious,  but  war  nevertheless.  The  war  is  all  the  more 
intense  and  irrepressible  because  it  springs,  not  from  personal 
hostility  or  accidental  misunderstandings,  but  from  ever- 
present  organic  economic  causes. 

There  is  war  between  employer  and  employee. 

The  employer  is  in  business  for  profits.  Industrial  profits 
come  from  the  work  of  the  hired  hand.  The  smaller  the 
wages  the  larger  the  profits.  The  employee  works  for 
wages.  Wages  represent  the  product  of  his  labor  after  de- 
duction of  the  employer's  profit.  The  smaller  the  profit 
the  larger  the  wages.  The  employer  must  strive  to  main- 
tain or  increase  his  profits  under  penalty  of  industrial  ex- 
termination. His  personal  views  and  feelings  cannot  alter 

2  Reproduced  by  permission  from  Harvard  Theological  Review  I, 
98  ff. 


24  SOCIAL  UNREST 

the  situation.  The  employee  must  strive  to  maintain  or 
increase  his  wages  under  pain  of  physical  destruction.  His 
personal  inclinations  do  not  count.  Sometimes  this  antag- 
onism of  interests  expresses  itself  in  petty  bargaining  and 
commonplace  haggling,  and  at  other  times  it  assumes  the 
form  of  violent  conflicts:  strikes,  boycotts,  and  occasional 
dynamite  explosions  and,  on  the  other  hand,  lockouts,  black 
lists,  injunctions,  and  jails. 

There  is  war  between  employer  and  employer. 

Each  capitalist  controls  a  share  of  an  industry.  The 
greater  the  share  the  larger,  ordinarily,  is  his  profit.  His 
natural  desire  is  to  increase  his  share.  He  can  do  that  only 
at  the  expense  of  his  neighbor.  Hence,  the  mad  industrial 
competition,  the  merciless  rivalry  for  the  "  market,"  the  mu- 
tual underbidding  and  underselling,  the  adulteration  and 
falsification  of  commodities,  the  senseless  speculative  enter- 
prises, and,  finally,  wholesale  failure  and  ruin. 

There  is  war  between  worker  and  worker. 

Modern  machinery,  although  inherently  of  untold  bless- 
ing to  mankind,  operates  as  a  curse  upon  the  toiler  under 
the  prevailing  system  of  individual  ownership.  It  does  not 
lighten  the  burdens  of  the  worker.  It  does  not  reduce  his 
hours  of  labor  —  it  displaces  him  from  his  employment. 
The  marvelous  productivity  of  the  machine  creates  the  dread 
legions  of  jobless  workers,  the  fierce  competition  for  a 
chance  to  work,  and  the  consequent  lowering  of  wages  below 
the  living  standard. 


WHAT  THE  OLD  REALLY  WAS  25 

The  automatic,  almost  self-operating,  machine  makes  child 
and  woman  labor  possible  and  profitable,  and  the  children 
and  wives  of  the  workers  are  drafted  into  the  field  of  in- 
dustry in  competition  with  their  fathers  and  husbands.  The 
more  women  and  children  are  at  work  in  factories  the  rarer 
becomes  the  opportunities  for  men  to  find  work  and  the 
lower  become  their  wages.  Child  and  woman  labor  means 
lower  wages  for  man.  Low  wages  for  men  mean  more  child 
and  woman  labor,  and  so  the  workers  move  forever  in  a 
vicious  circle  of  misery  and  privation. 

There  is  war  between  producer  and  user. 

Business  is  conducted  for  profits.  The  larger  the  prices 
of  the  commodity  or  the  higher  the  rate  of  service  the 
greater,  ordinarily,  is  the  profit  of  the  capitalist.  Hence, 
the  everlasting  quarrels  between  the  seller  and  the  buyer, 
the  landlord  and  the  tenant,  the  carrier  and  the  passenger, 
the  aggressive  and  inexorable  "  producer,"  and  the  pitiable 
"  ultimate  consumer." 

The  individualistic  and  competitive  system  of  industry  is 
a  system  of  general  social  warfare;  an  ugly,  brutal  fight  of 
all  against  all.  It  is  a  mad,  embittered  race  for  wealth  or 
bread,  without  plan  or  system,  without  pity  or  mercy.  It 
has  produced  the  abnormal  type  of  the  multi-millionaire 
with  a  hoard  of  material  wealth  enough  to  last  thousands 
of  families  for  countless  generations  to  come,  and  the  chil- 
dren of  the  slums  succumbing  for  lack  of  the  barest  neces- 
saries of  life.  It  operates  through  periods  of  feverish  activ- 


26  SOCIAL  UNREST 

ity  during  which  men,  women,  and  even  children  of  tender 
age  are  worked  to  exhaustion,  and  periods  of  inactivity  and 
depression  during  which  millions  of  willing  workers  are 
forced  into  idleness  and  starvation. 

The  system  of  competition  has  not  been  without  merit. 
It  has  organized  industry,  stimulated  invention,  and  in- 
creased human  productivity  a  hundred  fold.  It  has  created 
vast  wealth  and  evolved  higher  standards  of  life.  It  has 
broken  down  the  barriers  between  countries  and  united  all 
modern  nations  into  one  world-wide  family  of  almost  iden- 
tical culture  and  civilization.  It  has  played  an  important 
and  useful  part  in  the  history  of  human  growth. 

But  sharing  the  fate  of  all  other  industrial  systems,  com- 
petition finally  reaches  a  stage  when  its  mission  is  accom- 
plished, and  its  usefulness  is  outlived.3 

3 Morris  Hillquit:  "Socialism  Summed  Up,"  pp.  14-17. 


Ill 

THE  LIMITS  OF  PRODUCTION 1 

GEORGE  E.  ROBERTS, 

The  evolution  from  mere  economic  to  industrial  human- 
ism has  been  traced  by  Dr.  Shaw  in  his  Wesleyan  address. 
The  persistence  of  the  economic  struggle  has  been  described. 
To  a  comprehensive  view  of  the  present  world  unrest  it  is 
important  to  turn  back  briefly  to  some  of  the  earlier  theories 
before  facts  on  which  to  base  opinions  were  abundant.  The 
following  words  by  Mr.  Roberts  reenforced  by  Professor 
King  of  the  University  of  Wisconsin  and  Professor  John  B. 
Clark  of  Columbia  will  receive,  of  course,  the  utmost  con- 
sideration.2 

We  suggest  that  when  the  Washington  conference  meets 
it  will  do  well  to  take  up  for  consideration  a  book  upon 
"The  Wealth  and  Income  of  the  People  of  the  United 
States,"  by  Professor  Willford  I.  King,  of  the  University 
of  Wisconsin. 

Professor  King  says  that  the  quantity  of  goods  turned  out 
absolutely  limits  the  income  of  labor,  and  after  a  careful 
calculation  of  the  nation's  production  concludes  that  if  all 
rent,  interest  and  profits  were  eliminated  and  added  to  wages 

1  The  Americas,  September,  1919. 

2  The  reader  will  observe  that  the  editorial  links  are  represented 
throughout  the  book  in  smaller  type  than  the  ordinary  text. 

27 


28  SOCIAL  UNREST 

the  latter  would  not  at  the  outside  be  increased  over  25  per 
cent.  But  the  elimination  of  these  would  leave  nothing  in 
industry  to  finance  growth  and  development. 

Following  are  some  of  Professor  King's  comments,  which 
are  very  pertinent  at  this  time: 

"  After  all  reasonable  allowances  have  been  made,  the  fact 
remains,  practically,  that,  beginning  with  1870,  there  has 
been  an  increase  in  the  national  dividend  so  enormous  that 
it  cannot  logically  be  ascribed  to  anything  but  the  tremen- 
dous advance  in  productive  power  due  to  the  revolutionary 
improvements  in  industry  which  have  characterized  the  last 
half  century.  It  seems  improbable  that  any  other  great 
nation  has  ever  experienced  such  sweeping  gains  in  the 
average  income  of  the  inhabitants.  It  has,  almost  neces- 
sarily, been  accompanied  by  a  great  rise  in  the  standard  of 
living." 

"  Of  late  we  have  had  a  period  of  '  muckraking  '  in  which 
all  things  that  exist  have  been  pictured  as  very  bad  and 
growing  worse.  The  misery  of  life,  the  difficulty  of  making 
both  ends  meet,  has  been  over-emphasized.  True,  it  is 
just  as  difficult  to  secure  the  articles  required  by  our  stand- 
ard of  living  as  it  ever  was.  But  our  standard  of  living 
has  grown  more  expensive.  Increases  in  quality  cost  even 
more  than  increases  in  quantity.  Our  wants  always  have 
and  probably  always  will  increase  with  our  ability  to  sat- 
isfy them,  so  that  there  is  never  any  hope  of  winning  the 


THE  LIMITS  OF  PRODUCTION  29 

race  with  our  standard  of  comfort.  Such  a  race  is  just 
like  chasing  one's  shadow.  Nevertheless,  to  the  present 
author,  a  larger  per  capita  supply  of  economic  goods  ap- 
pears to  be  a  most  distinct  benefit  to  any  nation,  and  the 
United  States  has  been  greatly  favored  in  this  line  during 
the  last  sixty  years." 

"The  period  1850-1900  saw  that  come  to  pass  in  the 
United  States  which  the  English  economists  of  the  earlier 
nineteenth  century  deemed  impossible  —  the  improvement 
of  the  workingman's  economic  welfare  to  the  extent  that  he 
was  lifted  out  of  the  conditions  formerly  thought  insep- 
arable from  a  working  life.  He  tasted  the  cup  of  learning ; 
he  experienced  the  joys  of  leisure  and  entertainment,  and 
he  so  limited  the  size  of  his  family  as  to  enable  his  children 
to  continue  to  secure  these  advantages.  Larger  income  and 
more  learning  naturally  brought  more  power  and  secured 
more  respect.  The  army  of  labor  became  an  ally  to  be 
courted  or  an  enemy  to  be  feared." 

After  a  careful  discussion  of  the  division  of  the  national 
income  among  all  classes,  Dr.  King  reached  the  conclusion 
that  if  all  rent,  interest  and  profits  were  added  to  wages 
the  sum  of  the  latter  would  not  be  increased  by  more  than 
one-fourth.  He  says: 

"It  would  seem  improbable  that,  with  our  present  na- 
tional productive  power,  any  feasible  system  of  distribution 
could  increase  the  average  wage  earner's  income  in  pur- 


30  SOCIAL  UNREST 

chasing  power  by  more  than  one-fourth,  and  this  is  an 
extreme  rather  than  a  moderate  estimate.  While  such  a 
change  might  or  might  not  be  desirable,  it  would,  at  least, 
work  no  startling  revolution  in  the  condition  of  the  em- 
ployees of  the  United  States.  The  grim  fact  remains  that 
the  quantity  of  goods  turned  out  absolutely  limits  the  in- 
come of  labor  and  that  no  reform  will  bring  universal  pros- 
perity which  is  not  based  fundamentally  upon  increasing 
the  national  income.  After  all,  the  classical  economists 
were  right  in  emphasizing  the  side  of  production  in  contra- 
distinction to  that  of  distribution.  Nature  refuses  to  yield 
her  bounty  except  in  return  for  effort  expended.  Demands 
for  higher  wages  have  never  yet  unlocked  her  storehouses." 

These  conclusions  are  pertinent  to  this  whole  industrial 
and  social  situation  which  the  conference  is  to  consider.  If 
they  were  generally  accepted  they  would  clear  the  atmos- 
phere and  change  the  tone  of  current  discussion.  The  atti- 
tude of  wage  earners  toward  their  work  would  be  altered 
and  production  would  be  increased. 

President  Wilson  in  his  recent  letter  of  reply  to  the 
railroad  brotherhoods  said  that  what  was  wanted  now  was 
not  heat  but  light.  When  Lloyd  George  called  an  indus- 
trial conference  in  London  in  February  to  consider  the  sit- 
uation presented  by  the  threat  of  the  miners  and  railroad 
employees  to  strike,  the  conference  recommended  the  ap- 
pointment of  a  committee  of  investigation.  The  best  thing 
the  Washington  conference  can  do  is  to  recommend  the  ap- 


THE  LIMITS  OF  PRODUCTION  31 

pointment  of  a  competent  commission  to  examine  the  facts 
upon  which  Professor  King  has  based  the  above  conclusions 
and  report  whether  the  King  conclusions  are  sustained. 

What  is  wanted  is  a  demonstration  of  the  fact  that  the 
distribution  of  the  social  product  is  not  a  mere  matter  of 
selfish  struggle,  but  determined  by  economic  law;  that  it  is 
impossible  for  capital  to  exploit  labor  in  any  general  sense, 
because  the  very  efforts  of  capitalists  to  increase  capital  ac- 
complish an  inevitably  increasing  distribution  to  labor.  De- 
spite anything  that  capital  can  do,  the  economic  law  gives 
labor  a  constantly  increasing  share  of  an  increasing  product. 
Mr.  Henderson's  doctrine  works  vastly  more  injury  to  the 
laboring  class  than  anything  the  capitalists  can  do. 

Dr.  John  B.  Clark,  head  of  the  department  of  political 
economy,  Columbia  University,  writing  recently  of  the  so- 
cial disorder  prevalent  over  the  world,  said : 

"The  motive  of  it  all  —  the  hope  of  enriching  the  poor 
—  is  based  on  a  mistake  of  fact.  Not  only  Russian  revo- 
lutionists but  Socialists  everywhere  believe  that  the  income 
of  the  capitalist  class,  which  the  proletariat  is  urged  to 
seize,  is  several  fold  larger  than  it  is,  and  that  belief  ac- 
counts for  much  of  the  sympathy  which  American  Socialists 
express  for  the  Bolsheviki.  If  Russia  is  left  entirely  to 
herself  and  if  the  Bolsheviki  there  gain  full  control,  it  will 
in  time  be  discovered  that  the  wealth  which  has  been  seized 
was  originally  smaller  by  far  than  they  supposed-  it  was, 
and  that  the  revolution  has  reduced  it  to  a  pitiably  small 


32  SOCIAL  UNREST 

amount.  The  unlimited  treasure  of  Socialist  dreams  is  as 
unreal  as  the  gold  at  the  end  of  the  rainbow,  and  much  of 
that  lesser  treasure  which  was  real  and  substantial  has 
nearly  vanished  in  the  grasping.  The  effects  of  the  Bol- 
shevist government  and  the  soviet  form  of  government  and 
the  pressure  for  a  like  system  in  other  countries  are  based  on 
economic  illusions  which  experience  would  dispel,  though  at 
a  terrible  cost  to  the  countries  that  had  furnished  the  object 
lesson.  Russia  is  now  paying  at  a  tragic  rate  for  the  proof 
that  is  already  open  to  the  world  that  a  general  spoliation 
of  wealth  means  poverty  even  for  the  spoilers." 

These  opinions  by  men  who  are  scientific  students  of  so- 
cial conditions  are  entitled  to  weight  in  the  present  critical 
state.  Why  not  call  upon  them  for  the  facts  and  reasons 
by  which  they  have  reached  their  conclusions? 


IV 

THE  FOUR  PARTIES  TO 
INDUSTRY 

W.  L.  MACKENZIE  KING 

Many  have  attempted  to  interpret  the  new  world  of  in- 
dustry into  which  we  are  passing.  It  has  been  the  special 
business  of  the  editor  for  some  time  both  to  observe  phe- 
nomena and  to  read  its  manifold  interpretations.  Nowhere 
has  he  found  in  as  small  compass  such  clear  analysis  and 
sound  constructiveness  as  in  an  address  given  March  13, 
1919,  before  the  Empire  Club  of  Canada  at  Toronto,  a  part 
of  which  is  printed  below  by  the  courtesy  of  the  speaker, 
who  is  equally  at  home  in  the  United  States  and  Canada. 

We  are  accustomed  to  discuss  the  problems  of  industry 
in  terms  of  Capital  and  Labor.  The  inability  to  find  a 
workable  solution  to  many  of  these  problems  arises  from 
a  vision  thus  circumscribed,  and  an  ignoring  of  other  fac- 
tors equal  in  significance  and  importance.  To  carry  on 
industry  in  any  but  the  most  primitive  way,  four  parties,  dis- 
charging separate  and  distinct  functions,  are  necessary. 

First  of  all,  there  is  Labor,  which  supplies  the  muscular 
and  mental  energy  necessary  to  effect  the  processes  of  im- 
mediate transformation. 

Next,  there  is  Capital,  which  is  necessary  to  provide  the 

33 


34  SOCIAL  UNREST 

raw  materials,  the  tools,  appliances,  and  equipment  essential 
to  industrial  processes,  and  the  advances  in  the  way  of  food, 
clothing,  and  shelter  required  by  Labor  pending  the  dis- 
tribution of  the  finished  product. 

Then  there  is  Management,  or  Directing  Ability.  So 
frequently  has  Management  been  associated  with  the  own- 
ership of  capital,  that  the  identity  of  the  former  has  more 
or  less  been  merged  in  the  latter.  However,  a  moment's 
reflection  is  sufficient  to  disclose  the  complete  dissimilarity 
of  function  between  the  two.  Capital's  contribution  to  in- 
dustry is  in  the  nature  of  material  substance  loaned  by 
way  of  investment.  Its  possessor  may  be  any  kind  of  per- 
son, from  a  social  parasite  or  ne'er-do-well  who  is  the  in- 
heritor of  a  fortune,  to  an  infant  totally  incapable  of  any 
service  to  industry,  and  whose  property  is  necessarily  held  in 
trust.  Managerial  ability,  on  the  other  hand,  is  in  the 
nature  of  personal  service  of  the  very  highest  order,  and  is 
wholly  necessary,  not  only  to  bring  about  efficient  co-opera- 
tion between  Labor  and  Capital  in  the  work  of  production, 
but  also  to  effect  and  maintain  right  relations  with  the 
fourth  party,  without  whose  co-operation  in  all  that  per- 
tains to  industry  the  other  three  parties  could  accomplish 
little  or  nothing. 

The  fourth  party  is  the  Community,1  that  entity  which 
we  speak  of  sometimes  as  organized  society,  under  whose 

1  The  editor  uses  in  this  volume  the  more  familiar  phrase  "  the 
public  "  as  synonymous  with  "  the  community." 


THE  FOUR  PARTIES  TO  INDUSTRY        35 

sanction  all  industry  is  carried  on,  and  by  whose  continu- 
ous co-operation  with  the  other  parties  to  industry,  produc- 
tion, distribution,  and  exchange  are  rendered  possible. 

Not  only  are  the  four  parties  necessary  to  industry,  but 
they  are  equally  necessary  to  one  another.  Capital  can  do 
nothing  without  Labor.  Labor  can  do  nothing  without 
Capital.  Neither  Labor  nor  Capital  can  co-operate  effec- 
tively in  industry  save  under  the  guiding  genius  of  Man- 
agement ;  and  Management,  however  great  its  genius,  can  do 
nothing  apart  from  the  opportunities  and  privileges  the 
Community  affords. 

If  all  four  parties  are  necessary  to  industry,  and  equally 
necessary  to  one  another,  then,  surely,  all  four  should  have 
some  voice  in  the  control  of  industry,  and  with  regard  to 
the  conditions  under  which  their  services  to  industry  are 
rendered. 

Is  our  present  organization  of  industry  in  any  way  sug- 
gestive of  a  partnership,  in  which  Labor,  Capital,  Manage- 
ment, and  the  Community  are  regarded  as  inter-related  and 
interdependent?  Far  from  it,  as  everyone  knows  who  has 
given  the  organization  of  industry  a  moment's  reflection. —  I 
am  dealing,  of  course,  only  with  the  dominant  types  of  large 
industrial  organization,  for  it  is  mainly  from  this  source 
that  our  present  problems  arise:  transportation,  manufactur- 
ing, mining,  etc.,  etc. —  So  far  as  control  goes,  it  is  all  in 
the  nature  of  monopoly,  and  that  a  monopoly  of  control  on 
the  part  of  Capital. 


36  SOCIAL  UNREST 

The  owners  of  capital,  the  capital  investors,  choose  the 
Board  of  Directors ;  the  Board  of  Directors  choose  the  Man- 
agement and  dictate  the  policies.  The  Management  regards 
itself  as  responsible  solely  to  Capital.  Labor  and  the  Com- 
munity become  a  consideration  only  in  so  far  as  they  are 
able  to  make  their  power  felt.  Profits  for  Capital  are  a 
first  consideration;  profits  usually  as  high  as  it  is  possible 
to  make  them.  Wages  to  Labor,  prices  to  the  Community, 
are  what  they  can  be  kept  at,  what  the  market  will  allow. 
Labor  and  the  Community  are  not  regarded  as  partners, 
entitled  to  share,  through  common  knowledge,  in  a  common 
venture,  in  gains  and  losses  alike.  Such  control  as  they 
exercise  is  a  control  that  is  forced,  not  a  control  that  is 
voluntarily  shared;  a  control  that  in  the  nature  of  things 
begets  an  attitude  of  militancy  on  their  part. 

It  is  this  monopoly  on  the  part  of  Capital  in  the  control 
and  direction  of  industry  that  has  led  to  the  developments 
that  are  described  as  socialistic,  ultra-radical,  and  even  an- 
archistic. More  than  any  other  factor,  it  lies  at  the  root 
of  the  industrial  upheavals  of  the  present  time.  The  other 
parties  to  industry,  though  feeling  themselves  entitled  to  be 
regarded  as  partners,  have  despaired  of  gaining  any  meas- 
ure of  joint  control  by  concession.  They  have  felt  them- 
selves driven  to  exact,  by  force,  what  they  believe  to  be  their 
rightful  dues.  In  the  case  of  Labor,  this  demand  for  recog- 
nition in  the  control  of  industry  has  asserted  itself  in  the 
form  of  strikes.  In  the  case  of  the  Community  it  has  taken 


THE  FOUR  PARTIES  TO  INDUSTRY        37 

the  form  of  arbitrary  enactment,  leading  to  an  assumption 
of  single  control  by  the  state  or  municipality. 

What  is  the  Socialistic  State,  or  Collectivism,  which  is 
its  industrial  expression,  other  than  industry  so  organized 
as  to  transfer  industrial  control  from  Capital  to  the  Com- 
munity, to  the  exclusion  of  the  other  parties?  Under  the 
Socialistic  State,  the  Government  would  choose  the  man- 
agers of  industry,  would  own  the  instruments  of  production, 
levying  taxation  where  more  Capital  was  required,  and 
would  fix  the  wages  of  Labor,  and  the  prices  at  which  com- 
modities are  to  be  sold. 

The  War  has  revealed  that  the  Socialistic  State,  which 
many  workers  have  been  led  to  believe  is  certain  to  be 
beneficent  and  idealistic,  may  become  the  most  bureaucratic 
and  autocratic  of  agencies,  holding  within  its  power  the 
lives  and  freedom  of  men,  as  well  as  the  conditions  of  their 
employment.  Germany  has  given  that  object-lesson  to  the 
world. 

The  little  there  has  been  of  State  control  during  the  War 
has  also  revealed  that  the  substitution  of  political  managers 
for  industrial  managers  is  not  likely  to  be  the  best  for  either 
industry  or  the  State.  Of  that,  all  countries  have  had  a 
taste. 

What  are  the  extreme  movements  on  the  part  of  Labor 
but  a  similar  reaction  against  the  monopoly  of  Capital  con- 
trol? In  its  most  violent  forms,  this  reaction  has  found 
expression  in  Revolutionary  Syndicalism,  Bolshevism,  and 


38  SOCIAL  UNREST 

certain  forms  of  I.W.W.-ism,  where  in  addition  to  the  ignor- 
ing of  Capital  and  Management  as  parties  to  industry,  the 
Community  is  also  ignored,  and  Red  Terror  used  to  sup- 
plant Reason  in  all  that  pertains  to  the  accomplishment  of 
lawless  designs. 

Guild  Socialism  is  similarly  a  reaction  on  the  part  of 
Labor  against  monopoly  of  control  on  the  part  of  Capital. 
Like  State  Socialism,  it  would  rule  out  Capital's  right  to 
joint  control  just  as  effectively  as  Capitalism  seeks  to  rule 
out  Labor's  right  to  joint  control;  but  as  the  predominant 
factor  in  control  it  would  substitute  national  guilds  for  the 
state.  Industrial  unions  would  select  the  managers,  would 
own  the  capital,  and  would  determine  alike  wages  and  prices. 

In  protesting  against  an  actual  monopoly  of  control  by 
Capital  under  Capitalism,  and  a  possible  monopoly  of  con- 
trol by  the  State  under  Socialism,  Guild  Socialism  would 
establish  a  monopoly  of  control  by  Labor  under  National 
Industrial  Guilds.  This  is  a  natural  reaction.  It  repre- 
sents the  extreme  of  the  protest  by  a  militant  Labor  Union- 
ism against  the  monopoly  of  control  by  Capital,  just  as 
Collectivism  represents  the  extreme  of  a  protest  of  an  ag- 
gressive State  Socialism  against  the  monopoly  of  Capitalistic 
control.  Guild  Socialism  and  Collectivism  are  alike  in  that 
each  would  oust  Capitalism  by  setting  up  a  monopoly  of 
its  own. 

But  the  cure  for  monopoly  of  control  by  one  of  the  par- 
ties to  industry  is  not  to  be  found  in  the  substitution  of 


THE  FOUR  PARTIES  TO  INDUSTRY         39 

monopoly  of  control  by  one  of  the  other  parties;  it  lies  in 
the  destruction  of  monopoly  altogether.  It  is  to  be  found 
in  the  substitution  of  joint  control  for  single  control. 

Single  control,  whether  it  be  by  Capital,  Labor,  or  the 
State,  sooner  or  later  is  certain  to  mean  autocratic  control. 
Whether  Labor  or  the  State  as  the  autocrat  is  preferable 
to  existing  capitalistic  control,  beholden  as  it  is,  in  some 
measure  at  least,  to  both  Labor  and  the  State,  is  something 
to  which  conditions  in  Europe  at  the  present  time  afford  an 
all-sufficient  answer. 

It  is  not  monopoly  of  control  in  any  form  that  we  must 
seek  to  bring  about  in  this  period  of  transition,  but  a  grad- 
ual evolution  into  a  system  of  joint  control,  whereby  each 
of  the  parties  to  industry  will  be  afforded  a  voice  in  the 
determination  of  the  terms  and  conditions  upon  which  its 
services  to  industry  are  rendered. 

And  is  not  joint  control  by  all  the  parties  to  industry 
in  every  way  eminently  wise,  as  well  as  fundamentally  just? 
Is  it  not  in  every  way,  in  the  long  run,  to  the  interests  of 
industry,  and  to  the  interests  of  each  of  the  parties  to  in- 
dustry? Continuance  of  the  system  of  monopoly  of  con- 
trol by  Capital  is  no  longer  possible.  Once  autocracy  was 
doomed  in  the  political  world,  its  doom  was  equally  sounded 
for  the  industrial.  The  interest  of  every  one  of  the  parties 
to  industry  is  being  menaced  to-day  in  the  reactions  to  which 
the  monopoly  of  control  by  Capital  has  given  rise. 

No  one  of  the  parties  stands  to  lose  quite  so  much  through 


40  SOCIAL  UNREST 

a  continuance  of  the  struggle  arising  out  of  the  monopoly 
of  control  by  Capital,  as  Capital  itself.  As  things  are  to- 
day, it  is  at  Capital,  and  at  Management,  identified  with 
Capital,  that  the  stones  are  being  blindly  hurled.  War 
ridden,  hungry,  and  penniless,  men  and  women  have  wit- 
nessed the  wanton  extravagance  of  many  of  those  possessed 
of  luxury.  They  have  become  bewildered  with  a  condition 
which  enables  an  idle  investor  to  reap  a  fortune  while  the 
masses  toil  excessive  hours  for  a  bare  subsistence.  They 
have  lost  sight  altogether  of  the  services  of  Capital  and 
Management  in  witnessing  the  debauchery  of  indolence  com- 
bined with  riches,  and  the  unearned  millions  of  profiteers. 

But  let  the  service  that  Capital  and  Management  are 
capable  of  rendering  industry  once  be  lost  to  sight,  and  in- 
dustry itself  will  be  ruined,  and  with  it  the  well-being  of 
Labor  and  the  Community  as  well.  What  is  needed  is, 
not  the  ruination  of  Capital  and  Management,  but  that  each 
be  given  its  rightful  place  in  a  system  of  the  government 
of  industry  which  will  make  for  the  good  of  all  the  parties 
to  production. 

Nor  is  the  monopoly  of  control  by  Capital  wholly  fair 
to  Management,  or  in  its  best  interests.  It  has  been  my 
privilege  to  talk  pretty  freely  during  the  past  few  years  with 
the  managers  of  many  large  industries,'  and  I  find  in  the 
minds  of  not  a  few  of  them  a  feeling  that  everything  is  to 
be  gained,  and  nothing  lost,  by  having  the  function  of  Cap- 
ital and  the  function  of  Management  kept  separate  and  dis- 


THE  FOUR  PARTIES  TO  INDUSTRY        41 

tinct,  and  Management  given  a  freer  hand  in  considering 
the  interests  of  Labor  and  the  Community. 

Some  managers  there  are  who  obtain  their  positions,  not 
in  virtue  of  any  special  skill  in  managerial  ability,  but  be- 
cause of  personal  ownership  of  large  quantities  of  capital,  or 
intimate  association  or  relationship  with  some  investor. 
The  incompetence  of  such  managers,  and  their  slavish  sub- 
servience to  privilege  and  position,  to  the  exclusion  of  a  due 
consideration  of  the  rights  of  Labor  and  of  the  Community, 
only  serve  to  rouse  the  bitter  antagonism  of  both  these  par- 
ties, who  feel  that  their  rightful  interests,  as  necessary  part- 
ners in  industry,  are  being  thwarted  and  jeopardized. 

Not  a  little  of  the  militant  attitude  on  the  part  of  Labor, 
and  impatience  on  the  part  of  the  public  with  the  present 
order  of  industry,  is  due  to  a  feeling  that  some  managers 
fail  to  render  to  industry  any  service  at  all  commensurate 
with  the  enormous  salaries  they  receive,  and  to  a  belief  that 
the  interests  of  Labor  and  of  the  Community  alike  are  sacri- 
ficed to  incompetence  and  extravagance  which  would  not 
be  permitted  were  all  four  parties  to  industry  allowed  some 
voice  in  the  shaping  of  industrial  policy. 

Management,  instead  of  being  regarded  as  the  servant  of 
Capital  exclusively,  ought  to  be  in  a  position  to  regard  it- 
self, as  in  fact  it  is,  one  of  the  necessary  parties  to  industry, 
and  as  such  entitled  to  a  voice  in  matters  which  pertain  to 
its  administrative  functions ;  responsible  in  the  exercise  of 
its  duties,  not  to  one  party  only,  but  to  all. 


42  SOCIAL  UNREST 

In  the  emancipation  of  Management  from  the  single  con- 
trol of  any  one  of  the  parties,  whether  it  be  Capital,  Labor, 
or  the  Community,  and  in  the  development  of  its  function 
into  that  of  a  responsible  executive,  concerned  equally  with 
all  the  interests  of  the  necessary  parties  to  industry,  lies  the 
hope  of  any  ultimate  solution  of  the  industrial  problem. 

Referring  to  what  is  fundamentally  right  and  just,  may 
it  not  be  asked:  Is  Labor  not  quite  as  much  entitled  to  a 
Toice  in  the  control  of  industry  as  Capital?  It  is  invest- 
ment in  industry  which  affords  the  right  to  share  in  cor- 
porate control.  Capital  and  Management  receive  represen- 
tation on  this  basis.  If  Capital  and  Management  are  so 
entitled,  why  not  Labor  also? 

Industry  is  a  joint  venture,  a  venture  of  Labor  as  well 
as  of  Capital.  The  difference  in  the  nature  of  the  invest- 
ment of  Capital  and  Labor  only  serves  to  emphasize  the 
fundamental  justice  of  Labor's  right  to  a  share  in  control. 
The  investment  of  Capital  is  in  the  nature  of  an  investment 
of  substances  and  dollars;  the  investment  of  Labor  is  an  in- 
vestment in  the  nature  of  skill  and  life.  The  one  is  a  ma- 
terial, the  other  a  human,  investment;  and  of  the  two,  the 
one  involving  life  is  the  more  precious. 

The  capital  investor  —  the  individual  who  in  industry 
loans  and  risks  his  capital  or  a  part  of  it  —  receives  for  his 
capital  a  return  in  the  form  of  interest ;  but  he  receives  some- 
thing more.  As  an  investor,  he  becomes  entitled  to  a  voice 
in  the  control  of  the  industry  in  which  his  investment  is 


THE  FOUR  PARTIES  TO  INDUSTRY        43 

made.  The  life  or  labor  investor  —  the  worker  who  in  in- 
dustry loans  and  risks  his  life,  or  gives  to  industry  that  part 
of  it  described  as  labor  —  receives  for  his  labor,  which  is 
the  use  of  his  life  and  skill  for  the  time  in  which  labor  is 
given,  a  return  in  the  form  of  wages.  He  lacks,  however, 
the  additional  right,  which  Capital  receives,  of  a  share  in 
the  government  of  industry.  If  Capital  obtains  this  right, 
in  addition  to  financial  reward  for  the  use  of  capital  for 
the  time  for  which  it  is  invested,  is  Labor  not  in  justice 
equally  entitled,  in  addition  to  its  monetary  reward,  to  a 
voice  in  the  control  of  industry  in  which,  for  the  time  being, 
its  life  and  skill  are  likewise  invested?  If  investment  in 
industry  has  any  meaning  at  all,  it  is  surely  one  equally 
shared  by  the  man  who  gives  his  labor  and  the  man  who 
gives  his  capital. 

The  Community's  right  to  representation  in  the  control  of 
industry,  and  in  the  shaping  of  industrial  policies,  is  wholly 
similar  to  that  of  Labor.  But  for  Community  investment 
on  a  local,  national,  and  international  scale,  Capital,  La- 
bor, and  Management  would  be  obliged  to  make  scant  shrift 
under  present-day  conditions  of  world  competition.  But 
what  of  the  Community's  part  in  industry?  Here,  too,  is 
joint  venture  on  the  part  of  the  Community  just  as  much 
as  on  the  part  of  Labor,  Capital,  or  Management.  What  is 
99  per  cent  of  the  expenditure  of  government  in  normal 
times  but  outlays  in  the  nature  of  investment  in  industry: 
investment  in  property  and  services  of  one  kind  or  another, 


44  SOCIAL  UNREST 

which  alone  makes  possible  the  vast  co-operation  and  co- 
ordination of  effort  which  is  the  very  life-blood  of  indus- 
try? 

The  vaster  industrial  organization  becomes,  the  more  it 
depends,  in  a  multitude  of  directions,  upon  the  investments 
of  the  Community. 

It  is  the  Community  which  provides  the  natural  resources 
and  powers  that  underlie  all  production.  Individuals  may 
acquire  title  by  one  means  or  another,  but  it  is  from  the 
Community,  and  with  the  consent  of  the  Community,  that 
titles  are  held.  It  is  the  Community,  organized  in  various 
ways,  which  maintains  government  and  foreign  relations, 
secures  law  and  order,  fosters  the  arts  and  inventions,  aids 
education,  breeds  opinion,  and  promotes,  through  concession 
or  otherwise,  the  agencies  of  transportation,  communication, 
credit,  banking,  and  the  like,  without  which  any  production, 
save  the  most  primitive,  would  be  impossible.  It  is  the 
Community  which  creates  the  demand  for  commodities  and 
services,  through  which  Labor  is  provided  with  remunera- 
tive employment,  and  Capital  with  a  return  upon  its  invest- 
ment. Apart  from  the  Community,  inventive  genius,  or- 
ganizing capacity,  managerial  or  other  ability  would  be  of 
little  value.  Turn  where  one  may,  it  is  the  Community 
that  makes  possible  all  the  activities  of  industry,  and  helps 
to  determine  their  value  and  scope. 

Community  investment  is  supposed  to  receive  its  return 
in  enhanced  purchasing  power  to  consumers  as  respects  the 


THE  FOUR  PARTIES  TO  INDUSTRY        45 

number  and  quality  of  available  services  and  commodities. 
This  is  a  return  akin  to  the  interest  Capital  receives,  and  to 
the  wages  Labor  receives.  But  is  not  the  Community 
equally  entitled,  on  grounds  of  investment,  to  a  voice  in  the 
control  of  industry  and  in  the  shaping  of  industrial  policy? 
Without  participation  by  the  Community  in  the  control  of 
industry,  there  is  nothing  to  prevent  the  emergence  of  a 
joint-profiteering  scheme  by  the  other  parties,  in  which  high 
wages  and  high  profits  are  secured  by  charges  which  fall 
either  immediately  or  ultimately  upon  consumers. 

If  industry  is  to  cease  to  be  the  battleground  of  rival 
factions,  each  selfishly  seeking  its  own  interest,  regardless 
of  the  interests  of  the  others,  its  government  must  cease  al- 
together to  be  a  matter  of  single  control  by  one  of 'the  par- 
ties, or  of  contending  controls  by  the  several  parties.  The 
parties  to  industry  must  be  brought  into  a  relationship  of 
partnership,  with  a  recognized  community  of  control. 

Partnership  is  essentially  a  matter  of  status.  It  does  not 
involve  identity  or  similarity  of  function  on  the  part  of  the 
partners,  or  equality  of  either  service  or  rewards;  but  it 
does  imply  equality  as  respects  the  right  of  representation 
in  the  determination  of  policy  on  matters  of  common  inter- 
est. It  is  this  principle  that  has  thus  far  so  largely  failed 
of  recognition.  The  justice  of  the  principle,  however,  can- 
not be  gainsaid. 

If  to  secure  a  just  consideration  of  the  rights  of  all  four 
parties  to  industry  something  in  the  nature  of  a  partnership, 


46  SOCIAL  UNREST 

involving  community  of  control,  is  necessary,  how,  it  will 
be  asked,  is  that  transition  to  be  effected?  Certainly,  it 
will  never  be  brought  about  by  violent  upheavals  or  revolu- 
tionary methods,  which  serve  only  to  disorganize  industry 
and  occasion  loss  to  all  its  parties.  It  must  be  brought 
about  in  an  evolutionary  manner,  here  a  little,  there  a  little ; 
line  upon  line,  precept  upon  precept,  all  working  toward  the 
consummation  of  one  ideal. 

Time  forbids  more  than  a  suggestion  or  two  as  to  the 
manner  in  which  a  constitution  for  the  parties  to  industry 
might  be  worked  out  in  a  way  which  will  help  to  allay  the 
industrial  unrest  of  our  times,  and  advance  the  highest  in- 
terests of  industry,  and  of  all  its  parties.  Obviously,  what 
is  most  needed  is  recognition  of  the  fact  that  industry  is  not 
a  matter  which  concerns  only  one  party,  but  that  it  is  of 
vital  concern  to  all  four:  to  Capital,  to  Labor,  to  Manage- 
ment, and  to  the  Community,  and  that  no  one  of  the  four 
is  entitled  to  a  monopoly  of  control. 

Once  recognition  is  given  the  four  parties  to  industry,  the 
solution  of  the  problem  of  industrial  relations  is  a  matter 
simply  of  proceeding  in  accordance  with  principles  which 
have  long  been  regarded  as  obviously  fair  and  just. 

The  first  of  these  principles  I  should  like  to  mention  is 
that  of  Conference.  It  is  impossible  to  get  anywhere  with 
a  man  with  whom  you  are  unwilling  to  confer.  Confer- 
ence is  chiefly  a  matter  of  attitude.  It  implies  approach, 
good-will,  confidence;  not  aloofness,  distrust,  and  suspicion, 


THE  FOUR  PARTIES  TO  INDUSTRY         47 

which  too  frequently  is  the  attitude  between  the  parties  to 
industry. 

Conference  between  the  four  parties  to  industry  has  been 
tried,  and  with  the  best  of  results.  It  was  found  absolutely 
necessary  to  the  winning  of  the  War.  It  was  not  until  the 
Government  of  Britain,  representing  the  Community,  invited 
Capital,  Management,  and  Labor  to  meet  in  common,  and 
policies  were  arrived  at  as  the  result  of  Round  Table  Con- 
ference, that  the  necessary  adjustments  of  industry  were  so 
arranged  as  to  make  possible  the  vast  production  of  muni- 
tions required  to  win  the  War.  What  was  necessary  to  the 
winning  of  the  War  is  equally  necessary  to  the  winning  of 
Peace  —  which  we  can  hardly  say  exists  so  long  as  interna- 
tional strife  gives  way  only  to  industrial  unrest. 

The  second  principle  is  that  of  Investigation.  Investiga- 
tion is  but  a  method  of  getting  at  the  truth;  and,  as  I  said 
at  the  outset,  it  is  the  truth  alone  that  shall  set  us  free. 
In  problems  of  the  magnitude  of  those  which  industry 
presents,  any  just  solution  is  impossible  without  a  knowl- 
edge of  the  facts.  There  are  certain  evils  which  publicity 
is  more  effective  in  preventing  and  remedying  than  penalty; 
and  unfair  dealings  between  the  parties  to  industry  are  of 
this  kind.  Meanness,  injustice,  gross  selfishness —  these  can- 
not endure  under  the  light  of  an  intelligently  formed  public 
opinion.  Most  industrial  ills  belong  to  this  class. 

What  we  need  quite  as  much  as  a  League  of  Nations  is 
a  League  of  the  Parties  to  Industry  to  see  to  the  enforce- 


48  SOCIAL  UNREST 

ment  of  this  great  principle,  and  the  moulding  of  public 
opinion  to  that  end.  Such  a  league,  I  believe,  would  lead, 
even  more  quickly  than  a  league  of  nations,  to  the  mainte- 
nance of  international,  as  well  as  of  industrial,  peace.  Ac- 
custom men  to  the  adoption  of  fundamental  principles  in  ad- 
justing their  industrial  relations,  something  which  imme- 
diately concerns  their  everyday  life,  and  the  application  of 
like  principles  to  international  affairs  will  take  care  of  it- 
self. 

A  third  principle  is  that  of  Organization  and  Collective 
Action.  The  problems  of  industry  are  world  problems. 
To  cope  with  them  successfully,  organization  is  absolutely 
necessary. 

What  would  become  of  Capital,  under  the  stress  of  world 
competition,  if  its  units  were  not  permitted  to  coalesce,  and 
large  organization  of  business  thereby  rendered  impossible? 
What  would  become  of  the  Community,  if  its  activities  were 
not  organized?  Deprive  managers  of  the  right  of  member- 
ship in  an  employers'  or  manufacturers'  association,  and  they 
would  be  the  first  to  say  that  their  liberties  had  been  in- 
fringed. Where,  then,  is  the  justice  of  denying  to  one 
party  to  industry  a  right  which  is  conceded  as  just  and  neces- 
sary to  the  other  three?  If  Capital,  Management,  and  the 
Community  have  the  right  to  organize,  so  also  should  La- 
bor have  this  right. 

Without  organization  of  Labor  —  where  Capital,  Man- 
agement, and  the  Community  are  organized  —  what  equal- 


THE  FOUR  PARTIES  TO  INDUSTRY        49 

ity  of  relationship  can  there  possibly  be  between  the  four 
parties  to  industry?  And  where,  under  such  a  condition, 
are  the  individual  units  of  Labor  likely  to  find  themselves 
in  the  teeth  of  a  world  competition,  more  relentless  where 
Labor  is  concerned  than  in  the  case  of  Capital  or  Manage- 
ment? Labor  left  but  briefly  in  a  condition  of  isolation 
will  starve;  Capital  and  Management  are  usually  in  a  posi- 
tion to  wait. 

It  is  not  against  organization  that  we  ought  to  protest, 
but  against  the  possible  abuses  of  organized  power.  In 
this  connection  it  is  well  to  remember  that  the  use  of  a  thing 
is  one  thing,  and  its  abuse  another;  and  that  with  human 
nature  what  it  is,  abuses  of  power  are  not  confined  to  any 
one  class. 

A  fourth  principle  is  that  of  Representation.  Here  we 
are  at  the  beginning  of  the  real  solution  of  the  problems  of 
industry.  Government  within  the  State  has  widened  down 
from  autocratic  authority  to  authority  broad-based  upon 
a  people's  will.  The  expansion  of  the  principle  of  repre- 
sentation is  responsible  for  that  development.  It  will  be 
equally  so  in  industry.  The  problems  of  industry  are  essen- 
tially problems  of  government.  Adequate  representation  of 
the  parties,  effected  through  organization,  all  enjoying  the 
right  of  investigation,  and  meeting  in  Round  Table  Con- 
ference —  in  such  an  obviously  just  and  fair  arrangement, 
we  have  the  beginnings  of  law  and  order  in  industry,  just 
as  we  have  had  it  in  the  State,  and  the  hope  of  a  future 


50  SOCIAL  UNREST 

development  along  constitutional  and  evolutionary  lines,  in- 
stead of  along  lines  that  are  illegal  and  revolutionary. 

Once  the  principle  of  representation  is  conceded,  it  is 
only  a  step  to  the  formation  of  joint  committees  of  employers 
and  employees,  the  establishment  of  known,  orderly,  and 
expeditious  procedure  in  all  matters  requiring  adjustment, 
and  the  determination  of  industrial  policies  in  a  manner 
which  will  have  regard  for  the  interests  of  all  concerned. 

From  joint  committees  in  individual  establishments,  meet- 
ing at  periodical  intervals  for  little  more  than  purposes  of 
conference  and  consultation,  the  principle  of  representation 
should  lead  to  the  establishment  of  permanent  standing  joint 
industrial  councils,  embracing  all  the  workers  and  all  the 
employers  in  a  given  trade  or  industry  and  concerned  with 
the  determination  of  industrial  policies,  and  the  fixation  of 
industrial  standards  enforceable  throughout  by  the  co-opera- 
tion of  Government,  representing  the  Community  and  pro- 
tecting its  interests.  This,  as  you  know,  is  the  objective  of 
the  recommendations  of  the  so-called  Whitley  Committee 
which  the  Government  of  Great  Britain  has  adopted  as  the 
corner-stone  of  its  reconstruction  policy. 

Nor  is  the  formation  of  such  joint  committees  and  indus- 
trial councils  any  longer  a  matter  of  experiment.  Every 
day  is  adding  to  the  number  that  are  being  formed,  many 
of  them  in  industries  which  have  hitherto  opposed  anything 
in  the  way  of  organization  among  employees,  and  which 
have  conceded  little  or  nothing  in  the  way  of  conference. 


THE  FOUR  PARTIES  TO  INDUSTRY        51 

The  Trade  Unions  are  mainly  responsible  for  the  develop- 
ment that  has  thus  far  been  achieved.  They  have  pioneered 
the  path;  they  have  blazed  the  trail  which  has  led  to  col- 
lective bargaining,  joint  agreements,  and  contracts  between 
the  parties  to  industry.  It  has  been  a  long  and  bitter  strug- 
gle, this  struggle  for  recognition  on  the  part  of  Organized 
Labor.  It  has  involved  any  amount  of  ill-feeling  and  mis- 
understanding, and  fostered  no  end  of  prejudice  and  hatred; 
but  the  real  purport  of  Labor's  struggle  is  coming  to  be 
better  understood,  and  the  part  which  the  large  organiza- 
tions of  Capital  and  of  Labor  are  capable  of  playing 
in  reconstructing  human  society  is  emerging  into  clearer 
day. 

It  is  coming  to  be  seen  that  the  control  of  Labor  by  its 
leaders  is  wholly  dependent  upon  its  organization  into  con- 
servatively directed  unions ;  that  it  is  among  the  unorgan- 
ized and  undisciplined  workers  that  Bolshevism  and 
I.W.W.-ism  recruit  their  armies  of  terror  and  destruction. 
In  a  union  of  the  organized  forces  of 'Labor  and  Capital, 
against  a  common  enemy  which  menaces  all  human  society, 
lies  the  hope  of  the  future.  Industrial  concerns  which  have 
hitherto  stood  out  against  anything  in  the  nature  of  a  demo- 
cratic organization  of  industry  will  do  well  to  evidence  a 
disposition  to  act  upon  the  principles  of  conference,  inves- 
tigation, organization,  and  representation,  in  dealings  with 
their  employees,  and  to  concede  to  Labor  the  right  of  col- 
lective bargaining,  and  a  voice  in  the  determination  of  terms 


52  SOCIAL  UNREST 

of  employment  and  matters  pertaining  to  their  working  and 
living  conditions. 

It  may  be  that  Labor  needs  educating,  that  its  leaders 
need  more  in  the  way  of  experience;  but,  in  the  absence  of 
other  opportunities,  whence  are  education  and  qualities  of 
leadership  to  be  gained  if  not  in  the  industries  in  which 
Labor  is  employed,  and  through  joint  dealings  with  parties 
more  highly  favored? 

The  Joint  Industrial  Councils  being  formed  in  England 
show  how  this  new  approach  between  Capital  and  Labor  is 
certain,  in  its  most  highly  developed  forms,  to  take  account 
of  existing  organizations  of  Labor  and  Capital,  and  to 
change  the  attitude  of  these  powerful  bodies  from  one  of 
militancy  based  on  a  belief  in  opposed  interests  into  one  of 
co-operation  based  on  a  belief  in  the  larger  interests  which 
they  have  in  common. 

One  thing,  and  one  thing  only,  remains  to  ensure  a  new 
world  rising  out  of  the  ashes  of  the  old ;  but  without  it 
nothing  can  be  achieved.  It  is  the  acceptance  by  each  of 
the  parties  to  industry  of  the  spirit  which  has  saved  not  only 
Britain,  but  the  world,  in  the  overthrow  of  Prussian  arro- 
gance and  ambition.  It  was  through  a  love  of  liberty  and 
a  hatred  of  domination  that  men  by  millions  sacrificed  their 
lives  that  freedom  might  not  perish  from  the  earth.  The 
overthrow  of  Prussian  despotism  is  only  part  of  the  vast 
undertaking  which  the  free  nations  of  the  world  have  still 
before  them  if  Freedom  worthy  of  the  name  is  to  be  main- 


THE  FOUR  PARTIES  TO  INDUSTRY        53 

tained.  Industrial  autocracy  and  political  autocracy  may 
go  hand  in  hand,  but  not  autocracy  in  industry  and  de- 
mocracy in  politics.  The  latter  combination  is  as  ill-mated 
as  the  former  is  natural.  To  the  nations  that  have  won 
political  freedom,  there  remains  the  task  of  reorganizing 
their  industries  into  harmony  with  their  governments.  Any- 
thing short  of  harmony  means  perpetual  conflict.  Institu- 
tions opposed  in  organization  and  spirit  can  work  against 
each  other  only  till  one  or  the  other  prevails.  To  democra- 
tize industry,  so  that  along  with  democracy  in  government 
there  may  be  a  true  industrial  democracy,  is  the  task  that 
lies  ahead. 


V 
THE  COMING  OF  CAPITAL 

The  arrival  of  Capital  in  our  economic  history  was  not 
conspicuous  or  sensational ;  but  it  profoundly  affected  the 
economic  man  and  altered  the  economic  struggle.  Mr.  Hob- 
son  in  his  "  Evolution  of  Modern  Capitalism  "  sums  up  these 
changes  thus: 

1.  The  existence  of  considerable   masses  of  accumulated 
wealth. —  There  was  little  opportunity  in  the  Middle  Ages 
for  the  craftsman  to  make  more  than  a  living  out  of  his 
work.     The  early  accumulations  of  wealth  must,  therefore, 
have  come  from  land  rents  or  from  treasure  trove  acquired 
through   pillage   or  the  discovery   of   mines.     This  was   a 
necessary  forerunner  even  of  the  colonial  trade,  which  later 
became  one  of  the  most  fertile  sources  of  profit. 

2.  The  transfef  of  control  of  this  wealth  into  the  hands 
of  a  class  of  "  business   men." —  Originally  surplus   funds 
from  whatever  sources  went  to  the  church,  the  knightly  or- 
ders, the  nobles  or  to  city  funds.     With  the  growth  of  the 
towns  many  of  the  nobles  went  there  to  live,  bought  city 
land,  and  often  took  up  city  occupations.     To  a  greater  ex- 
tent the  change  came  through  the  gradual  transfer  of  con- 
trol of  both  public,  church  and  private  property  to  the  hired 
managers  of  various  ranks  such  as  rent-collectors  and  stew- 

55 


56  SOCIAL  UNREST 

ards,  or  to  the  public  officials  who  were  the  agents  of  the 
city  funds  and  estates.  Another  frequent  source  of  change 
of  control  and  even  of  ownership  was  the  prosperous  busi- 
ness of  money-lending  of  the  time. 

3.  The  use  of  the  accumulated  wealth  to  exploit  a  large, 
non-landowning   labor   class. —  This   possibility   was    found 
first  in  the  colonial  trade  where  the  native  labor  on  the  nat- 
ural resources  was  found  to  be  an  even  greater  source  of 
profit  than  the  discovery  of  the  precious  metals.     Later  the 
growth  of  population  and  the  change  of  conditions  of  agri- 
culture in  Europe  produced  such  a  labor  class  there  also. 

4.  The  development   of  the   industrial  arts. —  The   con- 
servatism of  vested   interests   in  the   gild   organizations  of 
the  mediaeval  city  did  not  conduce  to  any  changes  in  indus- 
trial methods.     Moreover,  there  was  so  small  a  market  for 
any  goods  that  labor-saving  devices  could  not  have  seemed 
necessary.     This  may  partly  have  accounted  for  the  concen- 
tration of  attention  by  the  "  science  "  of  the  time  upon  such 
problems  as  alchemy.     At  any  rate  there  was  no  scientific 
foundation  for  the  growth  then  of  a  technology  such  as  de- 
veloped later. 

5.  The  growth  of  the  capitalistic  spirit. —  Potential  en- 
trepreneurs of  early  days  had  little  chance  to  develop  their 
abilities  or  even  to  discover  them.     The  class  which  could 
afford  an  education  and  could  command  capital,  regarded  all 
industrial  occupations  as  degrading.     The  growth  of  a  class 
of  business  men,  mainly  from  the  lower  orders,  the  discov- 


THE  COMING  OF  CAPITAL  57 

ery  and  use  of  account-keeping,  land  surveying,  and  the 
adoption  of  modern  forms  of  contract  and  use  of  weights 
and  measures,  brought  about  that  change  of  spirit  from  in- 
terest in  treasure  hunting  to  interest  in  profit  making  which 
Sombart  calls  a  change  to  "  economic  rationalism." 

But  it  was  not  without  difficulty  that  capital  found  its 
way  into  the  economic  system.  Five  centuries  ago  the  whole 
social  organization  stood  across  its  way.  Even  our  own 
more  recent  slavery  system  made  difficult  the  domination  of 
capital.  Not  in  fact  until  labor  could  of  its  own  free  will 
at  first  follow  capital  did  the  capitalistic  spirit  develop 
without  check  and  by  force,  magic  invention,  ingenuity,  and 
the  skilful  use  of  money  dominate  the  lives  of  men  individ- 
ually and  collectively.  The  change  came  earlier  in  Eng- 
land than  America. 


VI 

VARIOUS  CONCEPTIONS  OF 
CAPITAL 

While  in  these  volumes  the  few  technical  terms  are  used 
in  their  everyday  meaning,  a  variety  representing  various 
shades  of  thinking  will  be  here  and  there  quoted.  Capital, 
for  instance,  has  its  ordinary  business  significance  for  the 
purposes  of  this  series.  It  includes  all  kinds  of  material 
possessions  which  have  value  for  exchange  purposes,  or  are 
available  as  surplus  wealth  for  investment.  Even  land  thus 
becomes  Capital  where  it  is  in  any  way  related  to  or  affects 
industrial  processes,  but  entering  the  regions  of  economic 
definition,  Capital  generally  appears  to  connote  wealth  ac- 
cumulated either  by  a  man  or  community  and  available  for 
earning  interest  and  producing  new  wealth. 

Richard  T.  Ely  even  more  simply  calls  Capital  "  an  ac- 
cumulation of  products  of  past  toil,  which  may  be  used  for 
purposes  of  further  production." 

John  Stuart  Mill  emphasized  the  element  of  abstinence 
from  consumption  which  he  thought  entitled  Capital  to 
claim  for  its  reward  rent,  interest,  or  even  profits. 

Long  before  his  day  Adam  Smith  had  drawn  a  distinc- 
tion between  "  fixed  "  Capital,  which  yields  a  profit  with- 
out appearing  to  change  hands  and  "  circulating  "  Capital 
which  may  change  hands  at  will. 

59 


60  SOCIAL  UNREST 

W.  H.  Mallock  insists  on  the  right  of  brain  work  to  be 
rewarded  as  against  the  Labor  view  that  Labor  alone  has 
normal  claims  for  compensation. 

Karl  Marx  went  to  the  extreme  of  definition  in  the  state- 
ment, "  Capital  is  a  social  relation  existing  in  the  processes 
of  production.  The  means  of  production  are  not  capital 
when  they  are  the  property  of  the  immediate  producer. 
They  become  capital  only  under  conditions  in  which  they 
serve  at  the  same  time  as  the  means  of  exploiting  and  ruling 
the  laborer." 


VII 
CAPITAL  AS  MONEY 

THE  EDITOR 

We  live  in  a  pecuniary  world.  In  practically  all  our 
business  relationships  we  use  money,  which  gives  us  power 
over  things.  There  was  a  time  when  barter  served  in  trade. 
But  rarely  did  one  person  possess  what  another  could  obtain 
by  exchanging  for  it  what  he  had.  Men  could  seldom  agree 
upon  a  common  denominator.  The  tailor,  as  some  writers 
have  observed,  might  have  a  coat  he  was  willing  to  exchange 
for  bread  or  meat;  but  to  cut  up  the  coat  to  procure  what 
he  desired  was  to  make  it  worthless.  He  could  therefore 
say  with  Hamlet : 

"  Like  a  man  to  double  business  bound, 
I  stand  in  pause  where  I  shall  first  begin, 
And  both  neglect." 

Like  the  alphabet,  money  had  to  be  invented  to  enable 
men  to  get  from  others  what  they  could  not  themselves  pro- 
duce necessary  to  exist  at  all.  Following  Bastable's  concep- 
tion of  money,  we  at  once  perceive  that  nothing  could  serve 
as  money  which  is  not  valuable  in  itself,  useful,  obtainable, 
transferable,  limited  in  supply,  unchangeable  in  value  over 

61 


62  SOCIAL  UNREST 

at  least  short  periods  without  failing  to  be  in  proportion  to 
the  weight  or  mass,  and  capable  of  division  for  convenience 
sake.  Silver  and  gold  alone  have  seemed  to  satisfy  such  a 
variety  of  tests,  and  for  a  generation  past  gold  has  taken 
precedence  of  silver,  which  has  proved  useful  as  a  subsid- 
iary coinage. 

Bastable  says  the  value  of  money  is  its  purchasing  power, 
and  this  depends  on  its  cost  of  production.  But  this  as- 
sumes a  freedom  of  competition  rarely  to  be  found.  Of 
course  nothing  can  serve  as  money  whose  value  fails  to  be 
in  proportion  to  its  weight  or  mass.  Silver  and  gold  have 
seemed  the  only  suitable  materials  to  meet  the  conditions 
indicated  above  of  money,  and  gold  for  a  generation  past 
has  for  obvious  reasons  taken  the  precedence  of  silver,  nat- 
urally a  subsidiary  coinage.  Turgot  long  since  said  silver 
and  gold  became  universal  money  in  the  very  nature  of  the 
case,  and  Cantillon  says  that  "  silver  and  gold  alone  are  of 
small  volume,  of  equal  goodness,  easy  to  transport,  divisible 
without  loss,  easily  guarded,  beautiful  and  brilliant  and  dur- 
able almost  to  eternity." 


VIII 
THE  NATURE  OF  CREDIT1 

PETER  P.  WAHLSTAD 

i.  The  Magic  of  Credit. —  That  credit  is  a  force  in  mod- 
ern business  requires  but  little  proof  in  view  of  its  extensive 
use  by  merchants  and  manufacturers  the  world  over.  That, 
as  a  matter  of  fact,  it  is  an  indispensable  element  in  present- 
day  commerce,  will  also  readily  appear  upon  even  a  cursory 
examination  of  the  subject.  That  some  of  the  feats  per- 
formed by  credit  are  remarkable  to  an  extent  approaching 
the  work  of  a  magician  upon  the  stage,  is  likewise  a  subject 
of  proof. 

To  illustrate  the  last  statement:  A  merchant  in  Chicago 
wishes  to  import  a  shipment  of  goods  from  a  manufacturer 
in  Yokohama,  Japan.  He  is  not  willing,  however,  to  pay 
for  these  goods  in  advance;  in  fact,  he  wishes  to  pay  for 
them  only  after  he  has  received  them  and  has  had  an  oppor- 
tunity to  re-sell  them  to  his  customers.  But  the  Japanese 
manufacturer  insists  upon  receiving  payment  before  the 
steamer  upon  which  he  is  to  ship  the  goods  leaves  port.  In- 
asmuch as  it  might  take  two  months  before  such  a  shipment 

1  Peter  P.  Wahlstad:  Credit  and  The  Credit  Man,  pp.  1-13. 
Reproduced  by  courtesy  of  the  Alexander  Hamilton  Institute  from 
"  Modern  Business,"  vol.  8,  ch.  i. 

63 


64  SOCIAL  UNREST 

could  be  delivered  in  Chicago,  and  since  another  month  or 
two  might  be  required  for  the  resale  of  the  goods  and  for 
the  money  to  reach  the  Yokohama  manufacturer,  probably 
four  months  would  elapse  before  the  transaction  as  a  whole 
could  be  closed.  It  is  evident,  therefore,  that  the  condi- 
tions imposed  by  the  shipper  on  the  one  hand  and  the  im- 
porter on  the  other,  cannot  be  complied  with  —  unless,  in- 
deed, the  latter  borrow  the  required  amount  of  money. 

Credit,  however,  overcomes  the  difficulty.  A  simple  letter 
of  credit,  obtained  by  the  Chicago  merchant  from  his  local 
banker,  permits  the  Yokohama  manufacturer  to  make  a 
four  months'  draft  upon  a  London  bank,  which  draft  he 
may  sell  to  his  Yokohama  banker  even  before  the  ship  that 
carries  his  goods  has  started  on  its  voyage  to  the  United 
States.  The  Yokohama  bank  in  turn  may  promptly  resell 
the  draft  to  a  local  merchant  who  has  bills  to  pay  in  Lon- 
don. Upon  presentation  in  due  time  of  the  draft  at  the 
London  bank,  the  latter,  with  a  stroke  of  the  pen  "  ac- 
cepts "  the  document,  which  thereupon  circulates  in  the 
credit  market  until  the  four  months  have  just  expired,  when 
it  is  again  presented  —  this  time  for  payment.  But  long 
ere  that  date  arrives,  the  goods  from  Japan  will  have  ar- 
rived in  Chicago  and  will  in  all  probability  have  been  resold 
by  the  importer.  A  sufficient  part  of  the  proceeds  of  the 
sale  will  also  have  been  sent  to  the  London  bank,  so  that  the 
latter,  when  the  draft  reappears,  is  ready  to  pay  it  without 
having  to  use  any  of  its  own  money. 


THE  NATURE  OF  CREDIT  65 

Thus,  without  any  one  having  advanced  a  penny,  the 
transaction  has  gone  through  without  a  hitch.  The  money 
which  the  Chicago  importer4  paid  for  the  Japanese  shipment 
was  received  by  the  shipper  four  months  before  that  money 
was  sent.  Yet  the  importer  sent  the  money  only  after  the 
goods  had  been  received  in  Chicago  and  resold  there. 
Credit,  as  we  see,  has  performed  the  apparently  impossible. 

2.  Meaning  of  Credit. —  It  is  natural  that  in  beginning 
our  study  of  this  exceedingly  important  fact  of  modern  com- 
merce, we  should  seek  to  obtain  a  clear  and  comprehensive 
understanding  of  the  meaning  of  the  term  itself.  In  a  gen- 
eral way,  of  course,  every  one  is  familiar  with  the  term 
"  getting  credit  "  or  "  buying  on  credit."  We  know  that 
ordinarily  it  describes  the  obtaining  of  something  in  the 
present  for  which  payment  is  to  be  made  in  the  future.  Yet 
for  our  present  purpose  we  need  a  somewhat  fuller  and  more 
exact  understanding  of  the  subject  than  this  general  con- 
cept affords. 

Numerous  definitions  of  credit  have  been  given,  each  dif- 
fering more  or  less  from  the  others,  according  to  the  special 
viewpoint  of  the  defining  authority.  Thus,  one  definition 
tells  us  that  credit  is  "  a  reputation  of  character,  of  confi- 
dence or  trust,  a  good  name  or  opinion  gained  by  upright 
conduct  in  business;  a  reputation  of  solvency."  Another 
definition,  equally  correct,  says  that  credit  is  "  the  present 
right  to  a  future  payment."  It  is  easily  recognized  that 
both  definitions  are  right  as  far  as  they  go;  yet  they  are 


66  SOCIAL  UNREST 

necessarily  incomplete  in  that  each  regards  the  subject  from 
only  one  point  of  view.  We  shall  probably  obtain  a  clearer 
idea  of  the  subject,  as  far  as  our  present  inquiry  is  con- 
cerned, if  we  consider  briefly  the  place  of  credit  in  our  mod- 
ern commercial  structure.  We  may,  therefore,  defer  for  the 
moment  any  attempt  to  supply  a  more  comprehensive  defini- 
tion. 

3.  Relation  of  credit  to  capital. —  When  wealth,  or  any 
part  of  it,  is  employed  for  productive  purposes,  as  in  manu- 
facturing or  similar  enterprises,  it  is  called  capital.     Unless 
it  is  employed  productively,  wealth  is  not,  properly  speaking, 
capital.     When  hoarded  or  otherwise  permitted  to  be  idle 
and  unproductive,  it  is  not  regarded  as  capital. 

Credit  is  not  a  product  of  labor,  and  is  not  capital.  It  is 
important  that  we  be  clear  as  to  that  from  the  outset.  We 
shall  presently  note  more  fully  what  credit  accomplishes  in 
the  world  of  trade,  and  shall  then  be  better  able  to  appre- 
ciate the  fact  that  whatever  else  credit  may  be  in  an  economic 
sense,  from  the  standpoint  of  the  merchant,  credit  may  prop- 
erly be  regarded  as  machinery  invented  to  aid  in  accomplish- 
ing the  purposes  of  capital. 

4.  Credit  and  civilization. —  Going  back  a  little,  we  note 
that  credit  did  not  obtain  its  present  importance  all  at  once. 
It  has  been  a  plant  of  slow  growth.     Credit  is,  in  fact,  both 
a  promoter  and  a  result  of  civilization,  and  its  development 
is  found  to  have  kept  pace  with  the  development  of  civiliza- 
tion, which  fact  suggests  that  as  time  goes  on  still  further 


THE  NATURE  OF  CREDIT  67 

refinements  and  extensions  in  the  profitable  use  of  credit 
may  be  possible. 

In  the  earliest  time  of  man's  existence  credit  was  prob- 
ably unknown.  For  as  long  as  might  was  right,  the  stronger 
possessed  himself  at  will  of  the  property  of  the  weaker,  and 
since  under  such  conditions  the  question  of  payment  did  not 
arise,  there  could  be  no  occasion  for  the  use  of  credit.  Grad- 
ually, however,  the  law  of  might  gave  place  to  the  law  of 
right,  and  instead  of  possession  by  conquest,  there  came  to 
be  possession  by  exchange.  For  the  thing  wanted,  another 
thing  of  equal  value  was  tendered,  and  if  the  exchange  was 
mutually  satisfactory,  the  trade  was  consummated. 

But  exchange  in  the  form  of  barter  is  necessarily  crude 
and  cumbersome,  and  seldom  wholly  satisfactory.  Hence 
the  demand  for  a  medium  of  exchange  arose.  Something 
was  needed  that  could  be  passed  from  hand  to  hand  at  a 
fixed  value  and  into  the  terms  of  which  other  values  could 
be  readily  translated. 

A  variety  of  commodities  came  to  be  used  for  that  pur- 
pose. It  is  interesting  to  recall  that  no  farther  back  than 
the  Colonial  period  of  our  country,  tobacco  was  used  as  cur- 
rency, and  for  nearly  two  hundred  years  the  State  of  Vir- 
ginia grew  its  own  money.  Maryland  did  the  same  for  a 
somewhat  briefer  period. 

Finally,  as  we  know,  gold  and  silver  became  the  preferred 
money  metals.  In  the  course  of  time,  however,  a  point  was 
reached  where  even  a  material  medium  of  exchange,  such 


68  SOCIAL  UNREST 

as  gold,  proved  inadequate  for  the  purpose  of  a  ready  ex- 
change of  goods  and  services.  For  that  reason,  and  for 
others  which  will  come  before  us  presently,  credit  came  to 
be  recognized  as  a  legitimate  and  desirable  factor  in  trade, 
and  began  to  take  the  place  of  money  as  a  medium  of  ex- 
change in  business  transactions. 

5.  Place  of  confidence  in  credit  transactions. —  With  the 
gradual  progress  of  civilization  men  learned  to  trust  each 
other,  and  out  of  this  increasing  confidence  of  man  in  his 
fellow-man  the  use  of  credit  was  gradually  developed. 

Without  such  confidence  there  could  of  course  be  no 
credit,  for  although,  as  we  shall  presently  see,  confidence  is 
not  the  sole  basis  of  our  credit  system,  it  is  nevertheless  in- 
dispensable to  the  existence  of  credit  relations.  "  Credit 
cannot  exist,"  as  one  writer  has  well  said,  "  without  confi- 
dence in  the  security  of  property  and  in  the  disposition  of 
the  purchaser  of  a  commodity  to  pay  for  it  at  the  time  ap- 
pointed. No  man  parts  with  his  property  except  when  he 
believes  an  equivalent  will  be  returned." 

6.  Confidence  supported  by  contract. —  It  is  clear,  how- 
ever, that  if  the  requirements  of  business  make  it  necessary 
that  men  trust  each  other,  it  is  equally  necessary  that  some 
means  be  found  for  protecting  this  confidence  and  prevent- 
ing its  abuse.     The  law  of  contract  has  come  to  us  as  a 
result  of  that  necessity.     As  the  lawyer  would  express  it: 
"  The  growth  of  civilization  is  the  development  of  man  from 
a  condition  of  status  to  a  condition  of  contract."     Earlier 


THE  NATURE  OF  CREDIT  69 

conditions  permitted  every  man  to  carry  on  his  way  of  mak- 
ing a  living  with  the  assurance  that  as  long  as  he  observed 
the  common  usages  of  the  locality  in  which  he  lived,  his 
status  or  economic  relation  with  other  men  would  be  duly 
protected.  Hence,  we  find  that  men  paid  customary  rent 
for  their  land,  received  customary  wages  for  their  labor  and 
charged  customary  prices  for  their  products.  In  fact,  busi- 
ness relations  of  every  kind  were  regulated  wholly  by  the 
customs  which  earlier  generations  had  established. 

Later,  we  find  that  men  entered  into  agreements  with 
each  other  whereby  they  pledged  themselves  to  perform  some 
act  in  the  future.  And  since  the  element  of  future  time  en- 
tered more  and  more  into  men's  business  relations,  it  was  seen 
to  be  necessary  that  the  confidence  upon  which  these  relations 
rested  should  be  protected  against  abuse.  It  is  for  this  rea- 
son that  the  fundamental  law  of  the  business  world  is  one 
that  punishes  severely  every  act  whereby  the  obligations  of 
a  contract  are  disregarded.  So  closely  associated  have  the 
two  ideas  of  confidence  and  contract  become  that  they  are 
often  expressed  in  a  single  word  —  credit.  From  a  legal 
viewpoint  credit  has  been  defined  as  a  "  right  of  action." 

7.  Time  element  in  credit. —  Just  as  in  all  credit  trans- 
actions confidence  is  an  essential  factor,  so  is  time  an  ever- 
present  element.  To  illustrate:  A  retail  merchant  buys 
from  his  wholesaler  a  bill  of  goods  amounting  to  $i,OOO. 
If  payment  were  demanded  on  delivery  of  the  goods,  the 
merchant,  perhaps,  could  not  pay  for  them.  If,  on  the 


70  SOCIAL  UNREST 

other  hand,  the  wholesaler  consents  to  wait  thirty  or  sixty 
days  for  his  payment,  it  will  be  possible  for  the  retailer  to 
resell  the  goods,  or  at  least  a  considerable  part  of  them,  be- 
fore the  wholesaler's  bill  falls  due.  Thus  it  becomes  pos- 
sible to  earn  a  profit,  by  the  resale  of  goods  for  which  pay- 
ment has  not  yet  been  made. 

This,  as  will  appear  more  fully  later,  is  just  the  purpose 
for  which  commercial  credit  is  sought  and  given.  To  this 
end  a  credit  of  thirty,  sixty,  or  ninety  days,  and  sometimes 
of  even  a  longer  period,  is  given,  the  credit  terms  being 
governed  by  the  nature  of  the  goods  and  by  the  customs  that 
prevail  in  the  particular  line  of  trade.  If  the  buyer,  in- 
stead of  holding  off  payment  until  the  expiration  of  the 
credit  period,  completes  the  transaction  by  paying  his  bill 
within  a  certain  shorter  period,  he  usually  receives  a  special 
discount  called  a  cash  discount.  This  cash  discount  in  most 
cases  applies  to  payments  made  within  ten  days  of  the  date 
of  invoice,  although  there  are  not  a  few  exceptions  to  this 
rule. 

8.  Credit  the  chief  medium  of  exchange. —  Since  with  the 
increase  and  development  of  business,  the  inadequacy  of 
money  as  a  medium  of  exchange  became  more  and  more  evi- 
dent, credit  gradually  assumed  a  more  and  more  important 
place  as  such  medium  in  the  settlement  of  business  trans- 
actions. This  development  has  now  reached  a  stage  where 
all  but  a  small  fraction  of  the  world's  business  is  transacted 
with  credit  as  the  medium  of  exchange,  though  all  such 


THE  NATURE  OF  CREDIT  71 

transactions  are  necessarily  measured  and  recorded  in  terms 
of  money. 

So  important,  in  fact,  has  this  function  of  credit  become 
that  any  attempt  to  dispense  with  it  at  this  late  day  would 
prove  disastrous  not  only  to  business,  but  to  society  at  large. 
If  we  may  conceive  a  situation  in  which  credit  was  elimi- 
nated and  the  substitution  of  cash  payment  enjoined,  we 
should  find  the  gigantic  machinery  of  the  world's  trade 
rapidly  coming  to  a  standstill.  Under  such  conditions  in- 
dustry and  enterprise  could  not  exist.  Untold  and  wide- 
spread suffering  and  death  would  follow,  and  man  would 
quickly  relapse  into  a  state  of  semi-savagery.  So  integral  a 
part  of  our  social  system  is  credit  at  the  present  time. 

In  the  oft-quoted  words  of  Daniel  Webster: 

Credit  is  the  vital  air  of  modern  commerce.  It  has  done 
more,  a  thousand  times,  to  enrich  nations  than  all  the  mines 
of  the  world.  It  has  excited  labor,  stimulated  manufac- 
tures, pushed  commerce  over  every  sea,  and  brought  every 
nation,  every  kingdom,  and  every  small  tribe  among  the 
races  of  men  to  be  known  to  all  the  rest :  it  has  raised 
armies,  equipped  navies,  and,  triumphing  over  the  gross 
power  of  mere  numbers,  it  has  established  national  su- 
periority on  the  foundation  of  intelligence,  wealth,  and  well- 
directed  industry. 

9.  How  credit  takes  the  place  of  gold. —  As  already  men- 
tioned, the  world's  gold  supply  is  wholly  insufficient  to  meet 
the  demands  of  trade  even  if  it  were  used  for  nothing  else. 
For  the  purpose  of  settling  trade  transactions,  therefore,  re- 


72  SOCIAL  UNREST 

course  is  had  to  bills  of  exchange,  notes  and  checks  —  com- 
monly spoken  of  as  instruments  of  credit.  Instead  of  hand- 
ing his  jobber,  say,  $100  in  gold  in  payment  of  a  bill  of  mer- 
chandise, the  retailer  may  offer  a  piece  of  paper  containing 
merely  a  promise  to  pay  a  certain  sum  at  some  definite  fu- 
ture date  —  a  promissory  note.  This  paper,  if  confidence 
is  had  in  the  ability  of  its  maker  to  fulfil  his  written  prom- 
ise, assumes  for  the  purpose  of  payment  all  the  importance 
and  value  of  the  gold  which  it  promises  to  pay.  Like  money 
it  may  be. passed  from  hand  to  hand,  each  recipient  using  it 
in  paying  his  bills. 

The  paper  may  be  an  order  upon  the  drawer's  bank  ac- 
count —  a  depositor's  check.  For  ordinary  purposes  of 
trade,  such  a  check  is  just  as  good  as  the  money  it  repre- 
sents. The  one  who  receives  it,  instead  of  taking  it  to 
the  maker's  bank  and  there  exchanging  it  for  its  face  value 
in  gold,  simply  writes  his  name  across  the  back  of  it  and 
deposits  it  in  his  own  bank,  subsequently  drawing  his  check 
against  it.  Or  he  may,  after  thus  endorsing  it,  turn  it  over 
to  some  creditor,  precisely  as  though  it  were  actual  money. 

Again,  the  paper  may  be  a  draft  —  an  order  upon  some 
person  in  a  distant  city,  directing  him  to  pay  to  the  person 
named  in  the  order  as  payee  a  certain  sum. 

As  media  of  exchange,  these  various  forms  of  credit  in- 
struments are,  under  proper  conditions,  equally  serviceable. 

10.  Bank  and  government  credit  money. —  Possibly  the 
paper,  instead  of  being  a  privately  issued  credit  instrument, 


THE  NATURE  OF  CREDIT  73 

is  a  bank  note  issued  by  a  national  or  federal  bank,  promis- 
ing to  pay  on  demand  an  equal  sum  of  gold.  But  no  one 
into  whose  hands  such  a  bank  note  falls  thinks  of  taking  it 
to  the  issuing  bank  to  redeem  it  in  gold.  He  simply  regards 
it  as  "  money  "  and  proceeds  to  use  it  as  such.  He  knows, 
of  course,  that  the  government  has  safeguarded  such  bank 
notes  by  means  of  compulsory  deposits  of  first-class  securities, 
and  that  therefore  the  risk  he  is  assuming  is  wholly  negli- 
gible. 

Once  more  the  credit  paper  may  be  one  that  is  issued  by 
the  government  itself.  It  may  be  a  "  gold  certificate,"  en- 
titling the  holder  to  an  equal  amount  in  gold  whenever  he 
presents  it  at  the  treasury  department  for  payment.  But  in 
ordinary  times  at  least,  this  bit  of  paper  is  worth  for  pur- 
poses of  trade  every  cent  of  the  amount  printed  on  its  face, 
even  though  intrinsically  of  no  value  whatever. 

As  long,  therefore,  as  such  "  promise-to-pay  "  paper  is  ac- 
cepted and  passes  current  in  trade  for  the  liquidation  of 
debts,  this  medium  of  exchange  is  sufficient  to  effect  the 
settlement  of  trade  balances  the  world  over.  The  relation 
of  credit  to  gold  and  its  regulation  by  the  government  are 
interesting  and  important  subjects,  but  do  not  come  prop- 
erly within  the  scope  of  our  present  inquiry. 

II.  Other  advantages  of  credit  over  gold. —  Suppose  a 
million  dollars  were  to  be  sent  from  San  Francisco  to  New 
York  in  settlement  of  a  trade  obligation.  Suppose,  also, 
that  this  amount  in  gold  were  on  hand  and  available  for  the 


74  SOCIAL  UNREST 

purpose.  It  would  be  possible,  of  course,  to  pack  and  box 
the  gold  securely  and  to  send  it  by  express  train  across  the 
continent.  Yet  to  do  so  would  be  both  troublesome  and  ex- 
pensive. It  would  furthermore  entail  considerable  risk. 
The  loss  of  interest,  while  the  gold  was  en  route  and  thereby 
withheld  from  the  channels  of  trade,  would  add  to  the  cost 
of  transporation,  especially  if  delays  occurred. 

In  order  to  avoid  all  this  risk  of  loss  and  delay,  and  for 
the  purpose  of  saving  all  but  a  small  part  of  the  cost  in- 
volved in  such  shipment,  credit  is  summoned  to  the  shipper's 
aid.  A  bill  of  exchange  on  New  York  for  the  amount  to 
be  transferred  is  obtained  without  difficulty  and  promptly 
deposited  in  the  mail.  In  a  few  days  the  creditor  will  have 
received  the  amount  at  the  bank  in  New  York  —  not  in 
gold,  to  be  sure,  but  in  credit.  Yet  his  account  in  the  bank 
will  be  credited  with  the  amount  transferred,  just  as  though 
the  gold  itself  had  actually  been  received,  and  the  whole 
transaction,  as  far  as  he  is  concerned,  is  thereby  closed. 

When  large  amounts  are  to  be  sent  broad  —  perhaps  to 
some  far-away  country  where  the  shipment  of  gold  would 
be  attended  with  even  greater  risk  and  difficulty  than  in  the 
case  cited  —  the  use  of  credit  instruments  instead  of  gold  is, 
of  course,  all  the  more  convenient. 

12.  Difference  between  money  and  credit. —  But  while 
credit  as  a  medium  of  exchange  now  performs  the  greater 
part  of  that  work  which  formerly  was  allotted  chiefly  to 
money,  it  is  important  to  note  that  credit  itself  is  not,  under 


THE  NATURE  OF  CREDIT  75 

any  circumstances,  money.  The  latter,  being  wealth,  pos- 
sesses value.  The  metal  in  a  five-dollar  gold  piece  is  worth 
approximately  $5.  It  may  be  melted  or  hammered  into  any 
shape,  yet  merely  as  a  slug  or  piece  of  gold,  whatever  its 
form,  it  is  worth  and  can  be  sold  for  the  same  amount. 
Credit,  on  the  other  hand,  is  merely  an  evidence  of  debt  and 
obtains  its  commercial  value  solely  from  that  fact.  This 
is  shown  by  the  fact  that  when  times  are  hard  and  a  financial 
panic  threatens,  credit  is  unable  to  satisfy  the  existing  needs 
of  the  commercial  world.  At  such  times  there  is  already 
too  much  credit  in  existence.  Any  attempt  to  increase  that 
amount,  instead  of  relieving  the  tension,  only  adds  to  the 
existing  danger  and  distress.  In  the  confusion  which  al- 
ways exists  during  a  panic,  every  one  is  clamoring  for  money. 
Credit  is  abundant  in  the  form  of  evidence  of  debt;  money, 
that  is  gold,  is  correspondingly  scarce.  It  is,  in  fact,  just 
because  such  evidences  of  debt,  or  credit  obligations,  cannot 
be  liquidated  in  gold  on  demand  that  the  panic  occurs. 

In  the  same  way,  the  paper  currency  of  a  country  is 
good  only  so  long  as  the  government  is  able  to  redeem  it  in 
gold  upon  demand.  When  conditions  make  this  impossible, 
the  paper  currency  (government  credit)  quickly  declines  in 
value. 


IX 
THE  KINDS  OF  CREDIT 1 

H.  G.  MOULTON 

But  in  this  modern  business  world  with  all  its  complica- 
tions, barter  can  be  carried  on  only  to  a  limited  extent  even 
with  silver  and  gold.  In  consequence  "  credit  is  the  heart 
and  core  of  the  modern  business  structure."  But  credit  is 
intangible  and  elusive.  "  Now  you  see  it,  now  you  don't." 
A  check  or  a  promissory  note  is  visible.  But  they  are  some- 
times utterly  irrelevant  to  credit.  Back  of  all  outward  and 
visible  signs  is  confidence,  which  ultimately  rests,  as  the  late 
Mr.  J.  Pierpont  Morgan  said,  on  character.  In  business 
confidence  is  not  reposed  save  on  character  or  indisputable 
evidences  to  meet  obligations. 

By  Public  Credit  is  meant  chiefly  the  borrowing  opera- 
tions of  governments,  whether  national,  state,  or  local, 
through  the  issue  of  interest-bearing  securities.  The  govern- 
ment promises  to  pay  interest  on  a  bond  from  year  to  year 
and  to  repay  the  principal  at  some  stated  future  date.  The 
purchaser  of  the  bond  accepts  the  government's  promise  of 
intention  to  pay  and  has  faith  in  its  ability  to  keep  that 
promise.  The  government  by  means  of  its  credit  is  there- 

1  Taken  by  permission  from  H.  G.  Moulton,  "  Principles  of 
Money  and  Banking,"  Part  II,  pp.  16-20.  (The  University  of 
Chicago  Press,  1916.) 

77 


78  SOCIAL  UNREST 

fore  able  to  secure  funds  for  present  needs.  An  issue  of 
paper  money  by  the  government  is  another  example  of  a 
credit  operation.  Even  without  any  fund  for  redemption 
purposes  an  issue  of  paper  money  will  not  for  a  time  depre- 
ciate to  worthlessness ;  a  promise  of  ultimate  redemption  will 
give  it  some  value  so  long  as  faith  in  the  word  of  the  govern- 
ment is  not  entirely  shattered.  At  any  rate,  a  partial  re- 
serve in  coin,  as  in  the  case  of  our  greenbacks  at  present,  will 
maintain  the  value  of  paper  currency.  To  the  extent  of  the 
uncovered  issue  we  have  a  pure  credit  currency. 

By  Capital  Credit,  or  Industrial  Credit,  to  employ  an- 
other term,  is  meant  the  credit  used  by  corporations  in  pro- 
curing the  necessary  capital  required  in  their  business  opera- 
tions. The  corporation  agrees  to  return  to  the  purchasers 
of  its  bonds  at  some  future  date  the  equivalent  of  the  funds 
borrowed,  with  interest.  The  bondholder  thus  extends 
funds  to  the  corporation  because  he  believes  the  credit  of  the 
corporation  is  good.  The  purchaser  of  stock,  also,  trusts  his 
funds  to  the  managers  of  a  corporation,  and  it  is  understood 
that  he  is  to  receive  dividends  in  the  future  (if  earned)  and 
ultimately,  if  the  business  is  liquidated,  a  return  of  his  share 
of  the  capital.  There  is  the  obvious  difference  between  a 
holder  of  stock  and  of  bonds  that  one  is  an  owner  and  the 
other  a  creditor,  that  the  returns  to  the  one  are  wholly  con- 
tingent, and  to  the  other  definite,  in  so  far  as  the  mortgage  is 
adequate.  But  credit,  through  the  entrusting  of  one's  funds 
to  a  third  party,  is  an  essential  element  in  both. 


THE  KINDS  OF  CREDIT  79 

Mercantile  Credit  is  the  credit  used  by  producers,  whole- 
salers, commission  merchants,  retailers,  etc.,  in  connection 
with  the  manufacture  and  sale  of  commodities,  that  is,  with 
the  movement  of  goods  from  first  producer  to  ultimate  con- 
sumer. For  instance,  a  manufacturer  who  buys  raw  ma- 
terials to  be  made  into  finished  commodities  may  agree  to 
pay  the  producer  of  the  raw  materials  only  after  he  has 
sold  his  product.  He  has  thus  been  "  trusted  "  by  the  pro- 
ducer; there  has  arisen  a  "  time  obligation,"  a  future  pay- 
ment. Or  the  manufacturer  may  at  once  pay  the  producer 
with  cash,  procuring  the  cash  by  a  loan  from  the  bank, 
which  he  promises  to  repay  after  the  goods  are  manufactured 
and  sold.  In  this  case  he  has  used  his  credit  with  the  bank 
instead  of  with  the  producer  of  the  raw  materials;  but  it  is 
obvious  that  the  nature  of  the  operation  is  the  same.  A 
wholesaler  or  retailer  may  likewise  purchase  the  goods  he 
wishes  to  sell,  on  time,  or  on  funds  borrowed  from  a  bank, 
as  the  case  may  be,  agreeing  to  repay  the  loan  after  the 
goods  are  sold. 

Mercantile  Credit  is  to  be  distinguished  from  Capital  or 
Industrial  Credit  by  the  character  of  the  business  which  em- 
ploys it  and  the  nature  of  the  use  to  which  the  funds  are  put. 
A  characteristic  feature  of  Mercantile  Credit  is  that  it 
usually  runs  for  a  short  time,  whereas  Industrial  Credit  is 
usually  extended  for  long  periods.  Mercantile  Credit  is 
represented  by  promissory  notes  and  bills  of  exchange  rather 
than  by  bonds  or  stock  certificates. 


80  SOCIAL  UNREST 

Personal  or  Individual  Credit  obviously  takes  its  name 
from  the  fact  that  it  is  connected  with  individuals  rather 
than  with  public  or  private  corporations.  It  is  the  means 
by  which  an  individual  may  secure  goods  for  consumption 
purposes  without  an  immediate  payment  of  cash.  The  la- 
borer who  settles  his  bills  on  the  weekly  pay  day,  the  sal- 
aried man  who  pays  by  check  at  the  end  of  the  month,  and 
the  farmer  who  settles  his  account  at  the  village  store  when 
he  sells  his  crops  are  cases  in  point.  Personal  Credit  is  dis- 
tinguished from  other  credit  in  part  by  the  character  of  the 
security  furnished  by  the  borrower  and  in  part  by  the  use 
that  is  made  of  the  things  borrowed.  The  basis  of  the  se- 
curity is  an  indirect  one,  consisting  primarily,  not  of  actual 
property  in  hand,  but  of  a  recognized  earning  power  from 
personal  or  professional  services.  The  things  borrowed  are 
generally  used  for  immediate  consumption  rather  than  for 
further  production.  Such  credit  is  therefore  often  called 
"  Consumption  Credit."  It  is  also  sometimes  spoken  of  as 
"  Retail  Credit,"  because  it  is  used  primarily  in  retail  trans- 
actions. This,  however,  is  confusing,  because  such  a  term 
migh  mean  the  credit  of  the  "  retailer  "  himself. 

Personal  Credit  is  usually  extended  without  requiring  a 
deposit  of  collateral  as  security  and  even  without  a  written 
promise  to  pay  in  the  future.  A  promise  is,  however,  im- 
plied, and  the  entry  on  the  books  of  a  retail  store  is  the  evi- 
dence of  the  credit  transaction.  "  Book  Credit "  is  a  name 
commonly  used  in  this  connection;  but  this  name  describes 


THE  KINDS  OF  CREDIT  81 

not  so  much  the  character  of  the  credit  operation  as  the 
manner  of  "  evidencing  "  the  credit  transaction.  The  credit 
on  the  books  is  an  evidence  that  a  personal  credit  has  been 
granted. 

The  fifth  form  of  credit  has  been  called  Banking  Credit. 
As  is  well  known,  banks  furnish  funds  to  borrowers  of  every 
description;  it  is  to  the  banks  that  one  in  need  of  credit 
naturally  turns.  But  by  Banking  Credit  is  not  meant  the 
credit  extended  to  individuals,  corporations,  merchants,  and 
governments.  Such  forms  of  credit  fall  within  the  classifi- 
cations given  above.  The  essence  of  Banking  Credit  may 
be  discovered  only  in  the  answer  to  the  question,  Where  do 
the  banks  procure  the  funds  which  they  loan  to  the  business 
world?  These  funds  are  procured  in  part  from  the  banks' 
own  capital,  and  in  part  from  the  funds  that  have  been 
left  with  them  by  individual  depositors;  but  in  the  main  it 
is  through  the  use  of  their  own  credit. 

A  bank  uses  its  own  credit  in  much  the  same  way  as  does 
an  individual.  A  man  who  is  responsible  morally,  who  has 
a  reputation  for  business  honesty  and  ability,  and  who  has 
security  in  the  form  of  commodities  that  enter  into  trade, 
is  able  to  borrow  on  his  credit.  He  uses  his  good  name  and 
his  property  as  means  of  securing  funds  for  immediate  use. 
A  bank  likewise,  if  it  possesses  the  confidence  of  the  com- 
munity, is  able  to  extend  its  business  by  means  of  its  credit. 
The  simplest  use  of  its  credit  is  found  in  the  entrusting  of 
funds  by  depositors  with  the  bank  —  for  safe-keeping  or  use, 


82  SOCIAL  UNREST 

as  the  case  may  be.  There  is  a  more  important  way,  how- 
ever, in  which  our  large  commercial  banks  use  their  credit. 
A  bank  with  $100,000  cash  on  hand  is  able  by  means  of  its 
credit  to  do  a  business  equal  to  five  or  six  times  this  amount. 
This  is  accomplished  through  borrowing  on  its  credit.  Just 
as  a  government  borrows  when  it  issues  paper  currency,  so  a 
bank  borrows  when  it  creates  obligations,  either  in  the  form 
of  bank  notes  or  deposit  accounts  against  which  checks  may 
be  drawn.  The  ordinary  commercial  bank  usually  owes  on 
demand  several  times  the  amount  of  its  cash.  A  bank  is 
safe  in  thus  extending  its  obligations  so  long  as  the  manage- 
ment is  efficient  and  the  resources  other  than  cash  are  ample. 
There  are  some  special  problems  involved  in  the  use  and  con- 
trol of  Bank  Credit,  but  in  essence  it  does  not  differ  from 
the  other  forms  of  credit  that  have  been  enumerated. 

Viewing  credit  apart  from  particular  groups  of  persons 
or  organizations,  such  as  governments,  corporations,  whole- 
salers and  retailers,  banks,  and  private  individuals,  two  dis- 
tinct types  of  credit  may  be  distinguished,  namely,  commer- 
cial and  investment  credit.  This  classification  is  of  the  fore- 
most importance  from  the  standpoint  of  economic  analysis 
and  a  clear  understanding  of  the  principles  underlying  the 
various  forms  of  banking  operations. 

Investment  credit  is  that  which  is  used  in  the  financing 
and  development  of  business  enterprises  such  as  railroads, 
factories,  workshops,  stores,  farms,  and  mines.  The  funds 
borrowed  are  invested  in  fixed  or  durable  forms  of  capital 


THE  KINDS  OF  CREDIT  83 

goods,  as  distinguished  from  consumptive  goods.  In  conse- 
quence, the  borrower  does  not  expect  to  be  able  to  repay 
the  loan  within  a  few  weeks  or  months;  rather,  he  plans  to 
pay  the  principal  of  the  loan  out  of  the  accumulated  earn- 
ings of  the  business  in  the  course  of  several  years.  The 
lender,  similarly,  regards  such  a  disposal  of  his  funds  as 
permanent;  hence  the  term  investment. 

Commercial  credit,  on  the  other  hand,  is  used  in  financing 
the  manufacture  and  marketing  of  goods,  and  it  has  to  do 
only  with  consumptive  goods.  It  is  only  another  name  for 
the  mercantile  credit  described  on  a  previous  page,  viewed 
from  another  angle  —  that  of  the  use  to  which  the  funds 
borrowed  are  put.  Unlike  the  borrower  of  investment 
funds,  the  borrower  here  wishes  to  use  his  funds  only  tem- 
porarily. A  concrete  case  will  serve  to  illustrate  the  differ- 
ence: A  borrows,  let  us  say,  $10,000  and  purchases  a  stock 
of  goods  with  the  money.  Two  months  later  he  sells  these 
goods  for  $11,000,  or  at  a  profit  of  10  per  cent.  The  goods 
purchased  thus  furnish  the  direct  means  of  liquidating  the 
loan.  The  borrower  for  investment  purposes,  on  the  other 
hand,  invests  the  $10,000  in  a  factory.  He  does  not  con- 
template selling  the  factory  within  a  few  weeks  or  months. 
On  the  contrary,  he  expects  to  use  the  factory  for  many  years 
in  the  manufacture  of  commodities.  It  may  take  ten  years 
or  more  before  the  accumulated  profits  will  permit  the  re- 
payment of  the  principal  of  the  loan.  The  latter  is  a  long- 
time process,  requiring  years  for  fruition ;  the  former  a  short- 


84  SOCIAL  UNREST 

time  operation;  carried  to  completion  in  a  few  weeks  or 
months.  It  is  by  means  of  the  former  that  industries  are 
developed  and  continued;  it  is  by  the  latter  that  the  manu- 
facture and  marketing  of  goods  are  accomplished,  that  com- 
modities are  transferred  through  purchase  and  sale  from  the 
original  producer  to  the  hands  of  the  ultimate  consumer. 


X 
SPECULATION1 

HARRISON  H.  BRACE 

As  financial  transactions  grow  more  complicated  to  meet 
the  demands  of  modern  business,  speculation  unorganized  and 
organized  emerges.  We  enter  now  the  field  of  prejudice. 
Speculation  is  by  many  still  believed  to  be  inherently  wrong 
and  to  lead  to  misery.  It  is  therefore  necessary  to  consider 
the  inherent  meaning  of  speculation.  Everybody  in  the 
business  world  is  in  a  sense  a  speculator,  for  everybody  en- 
deavors at  one  time  or  another  to  forecast  the  changes  which 
take  place  in  buying  or  selling  in  order  to  profit  or  protect 
himself.  Not  only  is  this  no  discredit;  but  in  a  world  of 
chance  and  risk  it  is  the  mark  of  wisdom.  Says  Mr.  Harri- 
son H.  Brace: 

He  who  would  abolish  chance  from  human  affairs  will 
have  an  impossible  task.  The  truths  that  underlie  the  world 
may  be  imagined ;  but  when  we  come  to  practical  affairs,  we 
find  that  there  is  an  element  of  risk  in  all  things.  The  first 
hunter  who  sought  to  entrap  game  found  that  his  catch  at 
different  times  was  unequal.  The  agriculturalist  is  engaged 
in  a  calling  in  which  there  is  certainly  a  great  amount  of 
risk.  Such  factors  as  drought,  moisture,  and  other  elements 
which  determine  whether  crops  shall  be  good  or  bad  are 

1 "  The  Value  of  Speculation."  Houghton  Mifflin  Company, 
pp.  4-6. 

85 


86  SOCIAL  UNREST 

governed,  many  of  them,  by  the  purest  chance.  In  under- 
taking any  business  enterprise,  the  careful  business  man  in 
his  calculations  always  allows  for  the  risk  which  he  well 
knows  that  he  must  face. 

It  is  natural  that  the  world  should  seek  to  eliminate  this 
risk;  and  much  of  the  progress  in  the  sciences  and  practical 
arts  is  due  to  increasing  knowledge  of  the  comparative  risks 
of  different  courses  of  action.  By  studying  every  factor 
necessary  to  the  accomplishment  of  a  particular  task,  the 
head  of  an  industry  is  able  to  select  that  course  which  will 
be  least  fraught  with  danger. 

But  the  most  expedient  method,  even  after  it  has  been 
carefully  selected,  has  risks  associated  with  it  which  cannot 
be  eliminated  and  which  must  be  guarded  against  by  some 
form  of  insurance  or  a  system  that  is  analogous  to  insur- 
ance. There  are  such  perils  as  those  of  fire,  storm,  and 
death  which  are  guarded  against  directly  by  insurance,  the 
method  being  to  spread  them  over  a  greater  area.  Thus 
risks  are  so  distributed  that  losses  in  one  area  are  compen- 
sated by  insurance  premiums  in  another.  The  different 
forms  of  insurance  that  have  been  invented  are  remarkable 
for  their  number  and  variety;  nevertheless,  there  are  many 
important  risks  that  cannot  be  directly  provided  for  in  that 
way,  but  in  the  case  of  which  a  system  analogous  to  that 
of  insurance  must  be  used.  These  are  the  general  risks  of 
business,  which  are  infinite  in  the  variations  that  they  as- 
sume. 


SPECULATION  87 

Some  of  these  general  risks,  which  cannot  be  borne  by 
insurance,  can  yet  be  undertaken  by  a  class  of  business  men 
who  specialize  as  speculators.  These  are  the  risks  of  fluctua- 
tions in  prices  due  to  changing  conditions  in  different  pe- 
riods of  time,  and  the  handling  of  them  constitutes  the  most 
important  function  of  the  speculative  exchanges.  In  the 
case  of  the  prices  of  the  majority  of  commodities,  these 
speculative  risks  are  bound  up  with  general  business  condi- 
tions in  such  a  way  that  they  cannot  be  separated  from  the 
other  causes  of  expense  and  assumed  by  any  special  class. 
But  by  speculation,  and  particularly  by  the  machinery  of 
organized  speculation,  many  of  these  risks  can  be  thus  segre- 
gated and  transferred. 

It  should  be  noted,  however,  that  while  the  function  of 
the  speculator  is  similar  in  many  respects  to  that  of  the  in- 
surer, the  method  by  which  his  influence  is  applied  to  the 
world  of  commerce  is  quite  different.  It  is  not  through  a 
contract  whereby  he  agrees  to  indemnify  the  public  against 
loss  that  the  speculator  acts;  but  he  performs  his  function 
by  buying  and  selling  in  the  market.  When  he  believes  that 
prices  are  low,  he  purchases.  When  he  believes  that  prices 
are  high,  he  sells.  This  he  does  in  the  pursuit  of  his  own 
selfish  interests;  but,  in  so  doing,  his  purchases  and  sales 
have  an  important  influence  upon  prices,  and  indirectly  upon 
the  whole  field  of  commerce. 

Thus  it  is  readily  seen  that  the  action  of  the  speculator 
affects  only  indirectly  the  demand  and  supply  of  actual 


88  SOCIAL  UNREST 

commodities  and  securities.  What  he  buys  at  one  time  as 
a  speculator,  he  must  at  some  other  time  sell ;  for  the  imme- 
diate effects  of  his  speculations  are  neither  to  produce  com- 
modities nor  to  consume  them.  He  neither  adds  to  the 
permanent  supply  nor  subtracts  from  it.  But  for  the  mo- 
ment, at  the  time  of  a  purchase  or  sale,  he  exercises  an  im- 
portant influence  upon  the  temporary  demand  and  supply, 
with  far-reaching  effect  upon  ultimate  production  and  con- 
sumption. Or,  to  look  at  the  question  in  a  slightly  differ- 
ent aspect,  he  distributes  the  demand  and  supply  over  differ- 
ent periods  of  time. 


XI 
WALL  STREET1 

LYMAN  P.  POWELL 

The  New  York  Stock  Exchange  is  the  dynamo  of  business 
life.  It  is  possibly  the  nerve  center  of  the  business  world. 
Everybody  is  apt  to  have  opinions  about  it,  however  ques- 
tionable his  title  to  the  same  may  be.  Choice  epithets  like 
"  hell-hole,"  "  gambling  hell,"  and  the  "  Inferno  of  specula- 
tion and  embattled  greed,"  have  been  flung  at  it.  One  man 
I  know  holds  it  directly  responsible  for  all  our  ills  of  busi- 
ness, though  he  admits  that  he  has  never  read  a  book  upon 
the  subject,  or  had  dealings  with  the  Exchange,  or  paid  a 
visit  to  it. 

To  some  the  Exchange  in  actual  operation  looks  like 
Bedlam.  Men  of  manifest  cultivation  and  good  breeding 
give  the  impression  of  behaving  like  the  irresponsible  and 
the  ill-bred.  Howling  mobs  shout  themselves  hoarse.  Shrill 
cries  of  bulls  mingle  with  the  "  boos  "  of  bears.  One  tears 
like  mad  from  crowd  to  crowd.  A  hand  shoots  up  above 
the  heads  around  and  uplifted  fingers  wigwag  back  some 

1  Reprinted  by  permission  from  The  Congregationalist,  Septem- 
ber 18,  1913.  Since  the  Stock  Exchange  is  the  heart  of  Wall  Street, 
it  will  perhaps  be  adequate  to  describe  life  on  'Change. 

89 


90  SOCIAL  UNREST 

answer.  The  "  mix-up  "  is  at  one  post  this  time,  at  another 
the  next.  Once  I  was  trying  to  evolve  some  order  out  of 
the  chaos  for  an  appreciative  companion  on  his  first  visit, 
when  a  bit  of  horse  play,  merely  a  respite  for  ennui  or  weari- 
ness, robbed  my  task  of  fruitfulness. 

But  to  the  understanding  mind  every  detail,  however 
obscure,  has  a  meaning  of  its  own.  Nothing  is  beyond  com- 
prehension. The  most  hopeless  complexity  is  simplicity  it- 
self. What  seems  chance  is  really  system.  Order  reigns 
over  apparent  disorder.  Big  issues  are  at  stake.  Fortunes 
are  perhaps  changing  hands.  Securities  are  selling  that  may 
be  the  doing  or  undoing  of  a  great  railroad.  Individual 
honesty  is  unquestioned.  Business  is  done  by  word  and 
memoranda.  Even  a  wink  may  involve  a  million  dollars, 
and  when  next  day  legal  settlement  is  made,  no  man's  mem- 
ory plays  him  tricks,  no  man's  lower  self  takes  advantage  of 
a  possibility,  no  man  disavows  the  bargain  or  seeks  to  annul 
the  contract.  Business  ethics  in  the  dealing  of  one  man 
with  another  reaches  its  climax  on  'Change. 

The  Exchange  is  nothing  but  a  market  place.  Men  of 
responsibility  with  securities  to  sell  are  seeking  buyers  where 
buyers  are  most  likely  to  be  found.  Nobody  is  obliged  to 
buy.  If  speculation  is  not  infrequent,  the  reader  may  well 
remember  that  it  was  not  a  "  bull,"  but  an  economist,  Prof. 
E.  R.  A.  Seligman,  who  said  that  "  speculation  tends  to 
equalize  demand  and  supply  .  .  .  and  subserves  a  useful, 
and  in  modern  times  an  indispensable,  function."  The  Ex- 


WALL  STREET  91 

change  simply  furnishes  a  meeting  place  for  buyer  and  for 
seller  in  big  business. 

The  organization  of  the  New  York  Stock  Exchange  is 
easily  described.  There  are  1,100  members.  They  form 
a  club  like  the  Union  League  or  the  Woman's  Suffrage  As- 
sociation. They  have  never  sought  nor  cared  for  state 
incorporation.  That  would  bring  obligations,  of  which 
they  are  sure  they  already  have  enough,  and  interfere  with 
that  informal  and  effective  discipline  which  makes  any  club 
serve  its  special  purpose. 

To  get  into  a  club  where  securities  are  of  as  great  value 
as  those  bought  and  sold  on  'Change  is  difficult,  as  it  ought 
to  be.  The  applicant  must  induce  some  present  member  to 
sell  his  seat,  and  the  price,  now  under  $50,000,  has  some- 
times soared  close  to  the  $100,000  mark.2  He  must  besides 
pay  an  initiation  fee  of  $2,000  and  $100  a  year  as  dues. 
His  name  has  to  be  posted  for  two  weeks.  Two  members 
must  stand  sponsor  for  him  ethically  and  financially. 

He  is  ever  after  subject  to  such  severe  oversight  as  few 
outside  of  'Change  believe  or  experience.  In  every  sense  he 
pays  a  high  price  for  his  new  club  membership.  The  Gov- 
ernors may  tap  his  telephone,  examine  his  or  his  partners' 
books  at  will,  dictate  with  whom  he  may  or  may  not  trans- 
act business,  and  even  determine  the  circumstances  in  which 
he  may  do  business  at  all. 

2  Early  in  1919  a  seat  sold  for  $94,000  and  the  latest  sale  in  the 
autumn  of  1919  was  for  $87,000. 


92  SOCIAL  UNREST 

There  are  compensations.  He  may  fellowship  with  one 
of  the  most  interesting  and  intelligent  group  of  men  in  the 
whole  world.  Here  he  finds  kindliness  and  generosity, 
charm  and  versatility,  cosmopolitanism  and  specialization, 
good  fellowship  and  high  honor. 

The  new  member  has  a  wide  range  of  choice  of  activities. 
He  may  become  a  "  specialist,"  or  a  "  two-dollar  broker," 
or  an  "  odd  lot  broker."  He  may  join  the  "  bond  crowd," 
which  rendezvous  directly  underneath  the  visitors'  gallery, 
or  the  "  arbitrageurs  "  along  the  south  wall,  eager  to  put 
money  in  their  purse  by  making  the  most  of  the  three  min- 
utes which  it  takes  to  cable  to  London  and  get  word  back 
again.  He  may  be  a  "  floor  trader,"  hurrying  from  one 
post  to  another,  asking  no  quarter  and  giving  none  in  the 
sharp  strife  of  wits.  He  may  sometimes  "  bull,"  and  some- 
times "  bear  "  the  market. 

The  new  member  has  today  new  ethical  responsibilities. 
We  have  arrived  at  last  at  the  break  between  the  old  and 
the  new  ethical  formation.  We  have  tried  in  business  and 
out  to  get  on  with  the  old  ethics  of  an  antiquated  individ- 
ualism, and  it  no  longer  works.  The  expansion  of  credit, 
the  interlocking  of  business  and  government,  the  multipli- 
cation of  mechanism,  have  left  individualism  far  behind. 

The  Stock  Exchange  has  not  been  guiltless.  Its  very  na- 
ture as  an  open  market  place  has  invited  sinning  on  the 
largest  scale.  While  the  days  are  past  when  by  some  it  was 
counted  proper  to  fool  the  public  at  every  turn,  to  "  make 


WALL  STREET  93 

a  market "  for  new  securities  at  any  cost,  to  turn  the  floor 
into  a  carnival  of  lawless  speculation,  to  call  in  the  printing 
press  to  manufacture  stocks  and  bonds  while  gamblers  fe- 
verishly waited,  there  are  evils  still  to  be  corrected,  improve- 
ments to  be  made.  When  it  is  possible  to  create  intangible 
securities  indefinitely  to  represent  tangible  railroads  and  meas- 
urable bushels  of  wheat,  even  the  billion  line  may  be  crossed, 
the  imagination  grow  bewildered,  Frankensteins  of  the 
mind's  creation  become  masters  of  the  situation,  and  when 
we  would  do  good,  if  we  but  understood,  we  may  do  evil, 
with  consequences  far  outreaching  our  design  or  knowledge. 
Owen  Johnson  hits  the  mark  in  "  The  Sixty-first  Second  "  : 

"  Is  he  a  crook,  after  all  ?  "  said  Beecher,  flinging  down 
the  extra. 

"  No,  he  is  not  a  crook,"  said  Gunther  quietly,  repeating 
the  words  with  slow  emphasis.  "  He  is  a  speculator,  a  great 
speculator,  and  he  has  been  made  the  victim  of  greater  spec- 
ulators who  covet  his  territory." 

Improvement  has  for  years  been  making.  The  Exchange 
is  one  of  our  few  institutions  peculiarly  responsive  to  ma- 
ture public  opinion.  It  has  had  to  make  haste  slowly.  It 
could  not  outstrip  public  sentiment.  But  the  time  has  come 
for  speeding  up,  and  the  best  men  on  'Change  are  alive  to 
the  necessity.  The  Hughes  Investigation  Committee,  which 
sensibly  recommended  the  self-reformation  of  the  Stock  Ex- 
change, the  Pujo  Congressional  Committee,  which  set  itself 
apparently  to  prove  that  the  Exchange  is  the  center  of  a 


94  SOCIAL  UNREST 

spider's  web  of  interlocking  directorates  representing  twenty- 
five  billions  of  dollars  subject  to  the  control  of  180  men,  and 
brought  in  both  a  majority  and  minority  report,  and  the  ful- 
minations  and  legislation  emanating  from  Albany,  were  all 
symptomatic  of  a  crisis  in  public  thinking  which  was  fairly 
faced.  Improvement  is  becoming  fact  as  well  as  theory. 
The  best  sentiment  on  'Change,  which  is  the  true  sentiment, 
had  the  supreme  opportunity  in  the  history  of  the  institu- 
tion to  become  the  only  sentiment  and  made  much  of  it. 

Fortunately,  the  Exchange  in  general  feels  the  stirring  of 
the  new  ethical  atmosphere  we  all  are  breathing.  It  ap- 
pears disposed  in  these  days  to  rise,  like  Caesar's  wife,  above 
suspicion.  Publicity  is  courted  with  new  ardor.  Crashing 
corners  and  crumpled  fortunes  are  gone.  The  great  plunger 
has  made  his  last  great  plunge,  and  has  not  left  even  one 
conspicuous  dodo  to  represent  him  in  Wall  Street. 
"  Mashed  orders,"  difficult  to  prevent  because  they  can  be 
managed  by  one  clever  mind,  have  been  forbidden  in  terms 
which  give  assurance  that  stock  transactions  will  hereafter 
involve  actual  transfer  of  securities  from  one  owner  to  the 
next.  Securities  that  should  be  listed  find  their  way  more 
easily  to  the  right  post,  and  there  is  no  longer  an  unlisted 
department.  The  bucket  shop  and  the  blind  pool  have  been 
put  out  of  commission.  Over-capitalization,  the  ofttimes 
cruel  creation  of  fictitious  values,  Salt  Trusts,  Hocking  Coal 
episodes,  which  excited  as  much  indignation  on  'Change  as 
off,  are  all  coming  to  heel  as  public  conviction  reinforces 


WALL  STREET  95 

Exchange  purpose  and  makes  it  possible  for  the  best  men 
on  the  floor  to  perfect  the  machinery  and  purify  the  atmos- 
phere of  our  supreme  money  market. 

The  Exchange  has  objected  to  state  incorporation.  It  has 
nothing  either  to  sell  or  to  buy;  it  merely  furnishes  a  place 
to  sell  and  buy.  It  wants  no  general  banking  powers,  such 
as  legislation  offers.  It  courts  no  more  responsibilities  than 
it  already  has.  If  one  legislature  confers  a  charter  on  the 
Stock  Exchange,  another  may  amend  the  same  to  the  in- 
stability of  a  business  averaging  for  an  estimated  period  at 
least  $23,500,000,000  a  year.  Experts  say  that  where  the 
ordinary  man  does  not  understand  even  the  stock  quotations 
which  appear  every  morning  in  the  back  pages  of  his  daily 
paper,  it  would  be  absurd  to  take  away  from  the  experienced 
Board  of  Governors  the  power  to  improve  the  delicate  mech- 
anism with  which  they  are  familiar,  and  give  it  over  to  a 
legislative  committee  possibly  in  part  ignorant,  and  at  best 
not  wholly  expert. 

To  incorporate  would  be  to  eliminate  every  incentive  to 
self-discipline.  To  give  the  courts  review  of  cases  now  set- 
tled by  the  Governing  Committee  would  be  to  expose  the 
members  of  the  committee  to  various  risks  of  litigation,  to 
lengthen  out  to  years  cases  now  settled  in  an  afternoon,  and 
to  invite  the  use  of  injunctions  and  stays  of  proceedings 
with  their  unsettling  and  unsatisfying  consequences. 

The  vigilant  eye  of  publicity  without  the  inexperienced 
hand  of  governmental  interference  would  seem  to  be  the 


96  SOCIAL  UNREST 

only  safeguard  as  yet  needed  of  the  vast  public  interests 
every  day  on  'Change.  For  the  Exchange  is  feeling  keenly 
the  flareback  of  the  new  ethical  momentum.  By-products 
and  slag  there  will  always  be  of  speculation,  but  with  the 
passing  of  the  old  days  of  regarding  public  properties  as 
private  and  of  committing  in  a  corporate  capacity  misdeeds 
that  would  be  counted  crimes  in  the  individual,  the  Ex- 
change is  gradually  becoming  to  all  what  it  has  long  been 
to  many — "  a  barometer  of  trade,  an  incentive  to  corporate 
expansion,  and  a  medium  for  constructive  investment." 


XII 
BUSINESS  CLEARLY  EXPLAINED 

JOSEPH  FRENCH  JOHNSON 

i.  Definition  of  business, —  In  everyday  speech  the  word 
"  business "  does  not  possess  a  clear-cut  meaning.  It  is 
applied  rather  vaguely  to  trading  and  manufacturing  occu- 
pations as  distinguished  from  the  arts  and  professions.  For 
the  purpose  of  our  study  business  may  be  defined  as  follows : 

Any  occupation  in  which  men,  at  the  risk  of  loss,  seek 
to  make  money  by  producing  commodities  for  sale,  or  by 
buying  and  selling  commodities,  or  by  hiring  the  services  of 
others  for  utilization  at  a  profit. 

Or  more  briefly: 

Business  is  any  gainful  occupation  of  which  profit  is  the 
goal  and  in  which  there  is  risk  of  loss. 

This  definition,  it  will  be  noted,  excludes  many  so-called 
gainful  occupations.  The  farmer,  for  example,  would  be 
said  to  be  in  business  only  in  so  far  as  he  hires  labor  and 
markets  his  products.  As  he  enlarges  his  operations  and 
hires  more  men  to  work  for  him,  he  becomes  more  and  more 
a  business  man  because  he  is  more  and  more  concerned  in 
such  problems  of  business  as  are  involved  in  accounting, 

97 


98  SOCIAL  UNREST 

management,  salesmanship  and  credits.  But  the  ordinary 
small  farmer  is  quite  properly  regarded  as  not  being  in  busi- 
ness. 

Evidently  a  country  storekeeper  is  in  business,  for  he 
buys  goods  in  the  hope  of  selling  them  at  a  profit  and  takes 
the  risk  of  not  being  able  to  do  so.  A  young  clerk  in  his 
employ  on  a  salary  takes  no  business  risk  and  is  not  thinking 
about  profits;  hence,  strictly  speaking,  he  is  not  a  business 
man.  But  he  is  part  of  a  business  machine  and  is  learning 
how  to  do  business,  and  so  is  commonly  thought  of  as  being 
in  business. 

The  owner  of  a  factory  who  buys  raw  materials  and 
hires  labor  is  taking  risks  and  is  in  business.  Some  of  his 
employes  are  artisans  or  workers  with  tools  and  machines; 
they  are  learning  nothing  about  business  and  are  not  thought 
of  as  being  in  business.  Other  employes  may  be  connected 
with  the  purchase  or  sales  department,  and  may  have  to  as- 
sume distinctly  business  responsibilities;  so  we  think  of  them 
as  being  in  business.  The  bookkeeper  who  keeps  the  rec- 
ords of  the  purchases  and  sales,  the  output,  the  costs,  etc., 
stands  on  the  border  line  between  business  and  manual  labor. 
As  mere  bookkeeper  he  is  little  more  than  a  machine,  but  as 
a  potential  accountant,  able  to  improve  his  employer's  sys- 
tem of  bookkeeping  and  to  warn  him  against  the  danger  of 
increasing  costs,  he  steps  into  the  ranks  of  business  men. 

In  general,  the  great  mass  of  laborers  in  manufacturing 
establishments  and  on  our  railroads,  whose  work  is  mainly 


BUSINESS  CLEARLY  EXPLAINED  99 

with  their  hands,  are  not  thought  of  as  business  men  altho 
they  are  connected  with  business  enterprises.  They  have  no 
part  in  the  solution  of  problems  involving  risk  and  profit 
and  are  not  being  trained  for  such  effort.  They  have 
"  jobs "  in  business  concerns,  but  they  assume  no  business 
responsibilities.  On  the  other  hand,  every  business  enter- 
prise employs  men  upon  whom  the  employer  unloads  some 
of  his  responsibilities.  Such  men,  whether  they  be  book- 
keepers, cashiers,  salesmen  or  department  managers,  are  in 
direct  contact  with  business  problems  and  are  regarded  as 
business  men  even  tho  their  own  money  is  not  at  risk. 

2.  Profit  and  risk  essential  elements. —  It  is  not  impor- 
tant to  decide  whether  this  or  that  man  is  in  business  or 
not,  but  it  is  important  to  understand  that  the  word  busi- 
ness necessarily  implies  a  balance  sheet  upon  which  the  two 
most  important  words  are  profit  and  loss.  If  profit  is  not 
the  goal,  then  the  enterprise  is  not  a  business  one. 

By  the  profit  of  a  business  enterprise  is  meant  the  surplus 
left  over  after  all  the  costs  or  expenses  have  been  paid.  A 
small  storekeeper  doing  a  cash  business  must  sell  his  goods  at 
such  prices  and  in  such  volume  as  will  enable  him  to  pay 
the  wages  of  his  employes,  a  fair  wage  to  himself,  rent  to 
his  landlord,  interest  on  capital  invested,  and  all  other  ex- 
penses. If,  at  the  end  of  a  year,  his  inventory  shows  that 
his  stock  of  goods  has  not  shrunk  in  value,  and  his  outstand- 
ing debts  are  no  greater,  the  increase  or  decrease  of  his 
bank  balance  during  the  year  will  disclose  his  profit  or  loss. 


ioo  SOCIAL  UNREST 

Profits  are  the  goal  of  business.  If  the  socialists  had 
their  way  and  legislated  capital  and  profits  out  of  existence, 
what  we  now  know  as  modern  business  would  completely 
disappear.  If  we  make  a  closer  study  of  profits  we  shall 
see  how  profit  is  earned  and  the  obstacles  that  must  be  over- 
come. Later  on  it  can  be  shown  that  the  struggle  for  profit 
which  we  call  business  has  been  a  tremendous  force  in  the  de- 
velopment of  human  capacity  and  for  the  advancement  of 
civilization. 

3.  Importance  of  money  and  price. —  At  the  present 
time  almost  all  goods  are  made  to  be  sold.  Specialization 
and  the  subdivision  of  labor  have  been  carried  so  far  that 
few  men  produce  the  things  which  they  themselves  consume. 
Old  people  recall  the  days  when  farmers  had  little  need  for 
cash,  for  they  bought  little  at  the  stores.  Their  own  farms 
produced  most  of  their  food  and  the  material  for  some  of 
their  clothing.  Today  the  average  farmer  in  the  United 
States  devotes  his  energies  to  the  raising  of  a  few  crops.  He 
sells  these  for  money  and  buys  his  food  and  clothes  very 
much  as  does  the  city  dweller. 

So  it  happens  that  money  and  prices  have  become  very 
important  matters.  What  men  really  want  are  goods  or 
commodities,  things  which  possess  what  we  call  value.  To 
get  these  is  the  ultimate  object  of  work,  but  under  modern 
conditions  the  immediate  reward  of  work  is  money,  for  with 
money  the  things  wanted  can  be  purchased.  By  the  price  of 
a  thing  is  meant  the  amount  of  money  it  sells  for.  Evi- 


BUSINESS  CLEARLY  EXPLAINED         101 

dently  the  subject  of  money  and  its  purchasing  power  is  of 
great  importance  to  all  people. 

Since  business  men  must  figure  their  profits  in  money 
and  cannot  make  a  profit  unless  they  sell  at  a  price  higher 
than  they  bought,  it  is  evident  that  the  forces  which  control 
the  purchasing  power  of  money  must  not  be  ignored  by  the 
wide-awake  business  man.  That  is  the  reason  why  the  sub- 
jects of  money  and  prices  and  credit  are  fully  treated  in 
the  Modern  Business  Texts. 

4.  Business  must  satisfy  human  wants. —  Altho  the  busi- 
ness man  is  seeking  to  make  a  profit  for  himself,  he  must 
nevertheless  think  more  of  others  than  of  himself.  He  can 
earn  his  profit  only  thru  his  ability  to  please  others.  If  he 
is  a  trader  he  must  buy  and  sell  things  that  people  want. 
He  is  not  a  dictator  and  cannot  make  people  buy  his  goods 
merely  because  he  himself  thinks  they  are  better  than  the 
goods  people  call  for.  So  the  business  man  must  study  hu- 
man wants  and  caprices.  He  may  not  approve  of  their 
tastes  or  of  their  judgment,  but  if  he  wishes  to  make  a  profit, 
he  must  be  ruled  by  them.  He  may  be  a  manufacturer  of 
shoes  and  know  very  well  that  high  heels  make  walking  pain- 
ful, but  he  will  not  let  what  he  knows  about  physiology  and 
anatomy  shape  the  model  of  any  woman's  shoe  —  unless  pos- 
sibly his  wife's. 

P.  D.  Armour  once  said  that  he  chose  to  deal  in  pork 
because  it  was  an  article  of  food  that  nearly  everybody 
wanted  in  some  form  or  other.  A  business  dealing  in  a 


102  SOCIAL  UNREST 

commodity  that  is  in  universal  demand,  such  as  wheat,  flour, 
or  cotton  cloth,  is  capable  of  tremendous  development.  The 
profit  on  each  ham  or  each  barrel  of  flour  or  each  gallon  of 
oil  may  be  small,  yet  the  gross  profits  may  run  into  the 
millions  because  of  the  large  sales. 

5.  New  wants  constantly  appearing. —  As  everybody 
knows,  the  last  twenty-five  years  of  the  nineteenth  century 
were  characterized  by  a  remarkable  development  of  machine 
production.  Invention  after  invention  lowered  costs  of  pro- 
duction and  made  possible  a  great  increase  in  the  output  of 
commodities.  One  man  with  the  aid  of  modern  machinery 
is  able  to  produce  one  hundredfold  more  than  his  grand- 
father could  have  produced  fifty  or  sixty  years  ago. 

While  this  industrial  progress  was  taking  place,  espe- 
cially between  1880  and  1896,  the  general  level  of  prices 
was  falling,  and  as  goods  became  cheaper  one  often  heard 
the  prediction  that  the  time  was  fast  approaching  when  all 
the  goods  that  man  needed  could  be  produced  by  two  or 
three  hours  of  labor  a  day.  The  increasing  efficiency  of  the 
machine  seemed  destined  to  reduce  the  demand  for  hired 
labor  to  a  minimum,  and  in  consequence  dire  prophecies, 
especially  among  persons  of  socialistic  or  radical  tendencies, 
were  heard  with  regard  to  the  future  of  the  laboring  classes. 
The  radicals  held  that  the  machine,  called  capital  by  the 
economists,  was  bound  to  absorb  an  increasing  proportion  of 
the  world's  wealth  and  that  less  and  less  would  be  left  for 
the  poor  working  man. 


BUSINESS  CLEARLY  EXPLAINED          103 

Happily  this  gloomy  prophecy  has  not  come  true.  It  was 
based  upon  a  fallacy,  namely,  the  assumption  that  man  has 
a  definite  number  of  wants  and  that  when  these  are  satis- 
fied he  is  content.  As  a  matter  of  fact,  man  is  a  bundle  of 
an  infinite  number  of  potential  wants.  This  is  one  of  the 
important  characteristics  which  distinguish  man  from  all 
other  animals.  A  certain  amount  of  food  and  drink,  a  little 
play  and  a  chance  to  run  and  climb  a  tree,  and  now  and  then 
to  "  lay  "  for  a  mouse  or  a  chipmunk,  will  bring  complete 
content  to  the  most  high-bred  tabby  in  any  cat  show.  The 
wants  of  all  the  lower  animals  are  fixed  in  number,  and 
when  these  are  gratified  the  animal  is  ready  for  rest  and 
sleep. 

But  man  is  insatiable.  As  his  power  over  nature  grows 
or  as  his  wealth  increases,  his  wants  multiply.1  When  poor 
and  half-nourished  his  idea  of  heaven  is  a  place  where  there 
is  an  abundance  of  roast  beef  and  vegetables.  A  poor  and 
ignorant  Yankee  farmer  was  once  asked  what  he  was  work- 
ing for.  "  Salt  pork  and  sundown,"  was  his  illuminating 
reply.  He  wanted  the  day  to  end  that  he  might  get  some- 
thing to  eat  and  go  to  bed.  If  that  farmer  should  inherit 
a  fortune  and  go  to  New  York  City  to  live,  it  needs  no 
prophet  to  foretell  what  would  happen  to  his  taste  for  salt 

1  Man  is  the  whole  encyclopedia  of  facts,  the  creation  of  a  thou- 
sand forests  in  an  acorn ;  Egypt,  Greece,  Rome,  Gaul,  Britain, 
America  lie  folded  already  in  the  first  man. —  RALPH  WALDO 
EMERSON. 


104  SOCIAL  UNREST 

pork  or  that  sundown  might  become  a  signal  for  something 
else  than  going  to  bed. 

6.  The  overproduction  bogey. — Fortunately  for  the  busi- 
ness man  as  well  as  for  the  man  who  wishes  to  sell  his 
services,  there  is  not  the  slightest  possibility  that  the  world 
will  ever  be  overstocked  with  the  things  that  men  desire. 
General  overproduction  is  impossible.  The  word  overpro- 
duction has  no  significance  in  business  except  when  it  is  ap- 
plied to  a  single  commodity.  The  automobile,  for  example, 
is  making  imminent  the  overproduction  of  horses,  wagons 
and  harnesses.  The  increasing  use  of  gas  and  electricity 
might  easily  lead  to  a  glut  in  the  lamp  market.  Some  peo- 
ple prefer  rice  to  potatoes,  both  having  substantially  the 
same  value  as  food;  if  this  taste  for  rice  should  spread  rap- 
idly thruout  the  country,  then  there  might  be  for  a  time 
overproduction  of  potatoes. 

Since  the  business  man  is  striving  to  make  a  profit,  he 
must  constantly  be  on  his  guard,  whether  he  be  manufac- 
turer or  trader,  against  overproduction  or  overstocking  in 
special  lines,  and  seek  to  anticipate  the  changes  of  demand 
to  which  the  market  is  susceptible.2  He  need  have  no  fear 
that  any  increase  in  the  production  of  goods  will  so  satiate 
the  human  race  that  there  will  be  no  desire  for  his  services. 

2  Schopenhauer,  the  German  philosopher,  rests  his  theory  of 
pessimism  on  the  capacity  of  human  wants  to  multiply.  He  held 
that  misery  was  the  ultimate  and  inevitable  lot  of  the  human  race. 
A  man  is  unhappy  in  the  presence  of  an  ungratified  want.  Happi- 
ness is  possible  only  when  the  want  is  gratified,  but  the  moment 


BUSINESS  CLEARLY  EXPLAINED         105 

As  production  increases,  wealth  will  increase,  and  the  de- 
mand for  goods  will  be  not  only  greater  but  more  varied. 

7.  Importance  of  salesmanship  and  advertising. — The 
reader  has  gathered  from  the  two  preceding  sections  not 
only  how  necessary  it  is  for  the  business  man  to  study  the 
wants  of  his  customers,  but  also  how  important  it  is  that  he 
be  able  to  give  them  just  what  they  want.  To  sell  a  man 
anything  you  must  first  know  what  he  wants  and  then  be 
able  to  convince  him  that  you  can  supply  it  at  a  reasonable 
price.  In  the  old  days  of  so-called  community  production 
and  marketing,  when  there  were  no  railways  nor  steamships, 
both  production  and  trading  were  usually  on  a  small  scale 
and  the  business  man  knew  most  of  his  customers  person- 
ally. Now,  however,  production  and  marketing  are  world 
affairs.  A  manufacturer  in  a  Massachusetts  village  may 
sell  in  all  the  continents  of  the  globe.  Thus  it  happens  that 
marketing  has  become  one  of  the  most  important  of  business 
problems.  No  man  can  succeed  in  business  if  he  ignores  its 
difficulties  and  its  perils. 

Advertising  and  salesmanship,  which  are  vital  parts  of 
the  marketing  process,  have  special  importance  in  any  busi- 
ness which  deals  in  something  new.  The  salesman  and  the 
advertisement  must  rouse  in  people  a  desire  for  that  new 
thing.  The  manufacturer  cannot  afford  to  wait  for  the 

the  want  is  gratified  two  other  clamorous  wants  take  its  place,  so 
that  the  poor  man  is  really  more  miserable  then  than  when  he 
thought  he  was  about  to  be  happy. 


106  SOCIAL  UNREST 

slow  development  of  his  industry  that  will  ensue  if  he  lets 
the  advantages  of  his  product  be  discovered  gradually  as  a 
result  of  its  use  among  a  small  number  of  customers.  Hence 
he  makes  it  known  in  every  possible  way,  and  for  that  pur- 
pose spends  money  in  a  fashion  which  his  grandfather  fifty 
years  ago  would  have  regarded  as  astounding  extravagance. 
Salesmanship  and  advertising  are  in  great  part  responsible 
for  the  spectacular  development  of  the  automobile  indus- 
try. 

8.  Three  great  classes  of  business. —  For  our  present  pur- 
pose it  seems  proper  to  divide  business  into  the  following 
three  classes: 

First, — The  production  and  sale  of  goods.  This  kind  of 
business  is  commonly  known  as  industry,  and  embraces  all 
kinds  of  manufacturing  and  the  so-called  extractive  indus- 
tries, mining,  agriculture  and  lumbering.  While  any  indi- 
vidual farmer  may  not  be  classed  as  a  business  man  because 
of  the  small  scale  upon  which  he  produces,  yet  agriculture  as 
a  whole  is  properly  regarded  as  an  industry. 

Second, — The  purchase  and  sale  of  commodities.  By 
commodity  is  meant  anything  which  has  value  and  is  there- 
fore salable.  This  kind  of  business  embraces  those  which 
are  usually  grouped  under  trade  and  merchandising. 

Third, — The  purchase  and  sale  of  services,  whether  the 
services  of  human  beings  or  the  uses  of  material  things. 
This  class  embraces  many  different  kinds  of  human  activity. 
The  banker  may  be  regarded  as  a  dealer  in  that  valuable 


BUSINESS  CLEARLY  EXPLAINED          107 

but  immaterial  thing  called  credit,  or  we  may  without  split- 
ting hairs  say  that  the  charge  he  makes  when  he  discounts  a 
promissory  note  is  for  the  service  the  bank  renders.  A  the- 
atrical manager  who  hires  the  services  of  players  is  a  busi- 
ness man,  but  the  players  are  not.  The  railroad,  steamship, 
telegraph  and  telephone  companies  sell  services.  The  city 
landlord  sells  to  his  tenant  the  right  to  use  an  apartment; 
strictly  speaking,  he  is  selling  a  service. 

This  use  of  the  word  service  may  seem  technical  to  the 
reader,  but  it  is  not  difficult  to  understand.  A  man  ren- 
ders you  a  service  whenever  he  aids  you  in  getting  what  you 
want.  Any  man  who  makes  a  "  business  "  of  rendering 
services  to  others  and  is  looking  for  a  profit  and  taking  a 
risk,  is  in  business. 

9.  The  Professions. — There  are  many  gainful  occupa- 
tions that  are  not  classed  as  business  for  the  reason  that 
profit  making  is  not  their  primary  aim.  The  most  impor- 
tant of  these  are  the  professions  and  the  arts.  The  three 
best  known  professions  are  law,  medicine  and  theology,  often 
referred  to  as  the  learned  professions.  In  recent  years,  other 
callings  have  acquired  equal  claim  to  rank  as  professions, 
for  example,  engineering  and  architecture. 

A  professional  man  finds  his  reward  not  merely  in  the 
money  he  earns,  which  comes  to  him  usually  in  fees  and 
retainers,  but  in  his  love  of  the  work,  in  its  dignity  and 
importance,  in  his  personal  independence,  in  the  distinction 
he  achieves  because  of  his  skill  and  intelligence,  and  in  the 


io8  SOCIAL  UNREST 

respect  he  commands  from  his  colleagues  of  the  same  profes- 
sion. 

The  prerequisite  to  success  in  a  profession  is  intellectual 
power.  If  success  in  any  calling  depends  more  upon  man- 
ual skill  than  upon  brains,  it  is  a  trade,  not  a  profession. 
For  example,  a  dentist  who  is  merely  able  to  extract  teeth 
and  to  fill  decayed  cavities  is  little  more  than  a  mechanic. 
To  be  entitled  to  professional  rank  he  must  know  as  much  as 
a  physician  about  the  various  diseases  that  attack  the  teeth 
and  the  gums,  and  must  be  able  to  treat  them  in  a  scientific 
manner.  To  impart  this  knowledge  as  well  as  to  give  op- 
portunity to  attain  mechanical  skill,  is  the  aim  of  all  our  best 
dental  schools.  Hence  dentistry  may  claim  to  rank  among 
the  professions. 

The  professions  differ  from  business  occupations  in  that 
they  have  definite  codes  of  ethics  which  prescribe  and  limit 
the  conduct  of  practitioners  in  the  various  contingencies 
likely  to  arise.  As  is  well  known,  it  is  unethical  for  a  pro- 
fessional man  to  advertise,  for  the  only  thing  he  can  adver- 
tise is  his  own  ability.  It  is  all  right  for  the  merchant  to 
extol  the  virtues  and  qualities  of  his  goods,  or  for  a  druggist 
to  claim  that  he  handles  only  pure  drugs,  but  evidently  it 
would  be  bad  taste  for  a  doctor  to  boast  of  his  wonderful 
cures  or  for  a  lawyer  to  brag  ab  >ut  his  success  in  the  courts. 
So  the  young  man  entering  a  profession  evidently  has  a 
hard  time  of  it  in  the  beginning.  He  may  send  out  cards 
announcing  that  he  has  opened  an  office,  he  can  join  clubs 


BUSINESS  CLEARLY  EXPLAINED          109 

and  societies  and  make  all  the  friends  possible,  but  he  must 
beware  of  any  conduct  that  seems  to  have  an  advertising 
aim.  Otherwise,  if  he  is  a  lawyer,  he  may  be  spoken  of 
contemptuously  as  an  "  ambulance  chaser,"  or  if  he  be  a 
young  physician,  he  will  be  looked  upon  with  suspicion,  will 
possibly  be  called  a  "  quack,"  and  will  be  given  no  "  boost " 
by  the  older  members  of  his  profession. 

Members  of  some  of  the  professions,  however,  are  wise 
if  they  make  a  study  of  business  problems.  Many  of  our 
most  successful  lawyers,  for  example,  are  constantly  occu- 
pied with  cases  which  cannot  be  thoroly  understood  by  one 
who  is  ignorant  of  business  principles  and  customs.  The 
engineer  or  the  architect  who  knows  nothing  of  corporation 
finance  or  business  law  or  of  cost  finding  will  never  rise  to 
the  highest  rank  in  his  profession. 

10.  Artists. —  In  all  these  respects  artists  are  very  much 
like  the  professional  men.  A  sculptor,  a  painter  or  a  poet 
cannot  brag  about  his  work.  The  prerequisite  of  success 
in  art  is  taste,  and  it  would  certainly  be  evidence  of  very 
bad  taste  for  an  artist  to  proclaim  his  superiority  to  the 
world. 

The  artist,  however,  is  not  altogether  debarred  from  the 
advantages  of  publicity.  Publishers  proclaim  the  worth  of 
the  poet,  and  dealers  advertise  an  exhibit  of  the  creations 
of  the  sculptor  and  the  painter,  while  theatrical  managers 
are  frequently  most  gorgeous  and  lurid  in  their  claims  for 
the  brilliancy  of  the  stars  behind  their  footlights.  Pub- 


no  SOCIAL  UNREST 

lishers,  art  dealers  and  theatrical  managers  are  in  business. 
It  is  proper  for  them  to  advertise.  But  the  artists  them- 
selves, if  they  are  to  be  thought  real  artists,  must  not  seem 
to  be  courting  publicity.  Possibly  this  view  may  come  as 
a  shock  to  some  so-called  artists,  yet  it  is  perfectly  true. 
But  then  artists  will  have  no  occasion  to  read  this  book. 

II.  Is  business  a  profession? — If  we  analyze  the  so- 
called  learned  professions,  we  find  them  distinguished  by 
these  two  characteristics:  first,  in  their  practice  brains  are 
far  more  important  than  technique  or  manual  skill;  second, 
education  in  certain  sciences  is  essential  to  success.  No  call- 
ing deserves  to  be  called  a  profession  if  its  tasks  and  prob- 
lems are  so  simple  as  to  be  within  the  grasp  of  any  man  of 
ordinary  ability  and  education.  The  problems  of  a  pro- 
fession can  be  correctly  solved  only  by  a  man  who  has  had 
thoro  training  in  science.  The  physician,  for  example,  apart 
from  his  knowledge  of  materia  medico.,  must  be  well 
grounded  in  anatomy,  physiology,  chemistry  and  bacteriol- 
ogy. Psychology  should  be  added  to  this  list,  altho  our 
medical  schools  do  not  appear  to  be  alive  to  the  importance 
of  this  science.  The  well  trained  lawyer  should  be  disci- 
plined in  the  sciences  of  pure  logic  and  of  jurisprudence,  in 
ethics,  in  the  evolution  of  law  and  in  the  theories  that  ex- 
plain and  justify  legal  doctrines.  When  the  physician  or 
lawyer  is  not  thus  trained,  the  young  lawyer  merely  know- 
ing the  statutes  and  procedure  of  his  jurisdiction,  and  the 
young  physician  knowing  only  drugs  and  symptoms,  both  are 


BUSINESS  CLEARLY  EXPLAINED          111 

empiricists  and  do  not  deserve  to  be  called  professional  men. 
They  resemble  the  carpenter  who  works  by  rule-of-thumb. 

Certain  business  callings  in  recent  years  have  risen  into 
the  professional  ranks.  Before  the  year  1900  few  public 
accountants  would  have  claimed  that  their  occupation  was 
professional  in  character.  The  accountant  was  then  often 
referred  to  as  a  "  bookkeeper  out  of  a  job."  But  the  really 
expert  accountants  of  the  last  century  knew  very  well  that 
their  difficult  tasks  could  not  be  performed  by  the  ordinary 
bookkeeper.  They  realized  that  the  accountant  could  not 
do  his  best  work  unless  he  knew  a  great  deal  about  the  busi- 
ness man's  problems.  It  has  been  largely  because  of  the 
accountants'  belief  in  the  high  character  of  their  work  that 
university  schools  of  commerce  have  recently  been  estab- 
lished in  all  parts  of  the  country,  in  which  men  are  trained 
in  all  the  sciences  underlying  business  as  well  as  in  the 
theory  and  practice  of  accounting.  For  the  same  reason 
many  states  have  passed  laws  providing  that  no  man  shall 
style  himself  a  "  certified  public  accountant  "  until  he  has 
successfully  passed  examinations  conducted  by  the  state  au- 
thorities. In  view  of  these  conditions  the  accountant  may 
fairly  claim  that  his  calling  is  one  of  professional  rank. 

Other  business  occupations,  notably  advertising  and  the 
work  of  the  credit  man,  are  rapidly  moving  in  the  same  up- 
ward direction.  Entrance  into  these  callings  is  not  yet 
guarded  by  statute,  but  many  of  the  leaders  already  realize 
the  need  for  preparatory  training,  and  some  of  our  univer- 


112  SOCIAL  UNREST 

sity  schools  of  commerce  are  doing  their  best  to  supply  it. 

The  American  banker  is  also  beginning  to  discover  his 
need  for  men  who  have  had  scientific  training,  for  the 
problems  of  banking  are  becoming  more  and  more  intricate 
and  difficult.  The  time  seems  to  be  approaching  when  bank 
presidents  and  managers  cannot  be  picked  haphazard  from 
lists  of  men  who  have  had  successful  experience  in  trade  or 
manufacturing.  Not  many  years  ago  a  prosperous  farmer 
was  often  elected  to  a  bank  presidency.  But  a  banker  is 
becoming  more  and  more  a  specialist,  and  competition  will 
surely  compel  him  to  obtain  mastery  of  the  sciences  under- 
lying the  phenomena  of  economics,  credit,  money  and  inter- 
national, as  well  as  national,  finance.  And  then  we  may 
fairly  claim  to  have  professional  bankers. 

Some  of  our  banks  are  showing  preference  for  univer- 
sity graduates  and  are  conducting  courses  of  instruction  for 
their  employes  which  are  scientific  as  well  as  practical,  but 
these  banks  are  exceptions.  Not  until  it  is  generally  real- 
ized that  office  experience  cannot  take  the  place  of  scientific 
training  can  banking  justly  be  called  a  profession. 

The  business  of  transportation  is  one  of  increasing  im- 
portance and  difficulty.  Many  of  our  railroad  managers 
have  worked  up  from  the  bottom  merely  by  the  knowledge 
they  have  gained  in  the  service.  In  the  future  this  working 
up  will  doubtless  be  more  difficult  unless  the  ambitious  em- 
ploye does  a  lot  of  hard  studying  and  thinking  in  his  leisure 
hours.  The  successful  management  of  a  great  railroad, 


BUSINESS  CLEARLY  EXPLAINED          113 

while  demanding  great  executive  ability,  also  calls  for  a 
profound  knowledge  of  economic  and  industrial  conditions. 
Some  day  it  should  rank  among  the  professions. 

12.  What  constitutes  success  in  business?  —  Since  profit 
is  admittedly  the  aim  of  business,  it  would  logically  follow 
that  a  business  man's  success  can  be  measured  only  by  the 
amount  of  money  he  makes.  As  a  general  statement  this  is 
perfectly  true,  yet  erroneous  inferences  and  applications  are 
quite  possible. 

The  manager  of  a  New  York  City  bank  may  raise  the 
net  earnings  of  his  bank  by  one  million  dollars  a  year  and 
yet  not  really  be  so  successful  as  a  small  country  banker  who 
increases  his  bank's  revenue  by  only  ten  thousand  dollars 
a  year.  In  the  same  way  the  business  of  a  city  merchant 
may  annually  expand  by  a  million  dollars  and  yet  he  may 
be  properly  regarded  as  less  successful  than  a  small  country 
merchant  the  volume  of  whose  business  is  increasing  at  the 
rate  of  only  ten  thousand  dollars  a  year.  The  city  banker 
and  merchant  have  practically  unlimited  opportunities  of 
expansion,  while  the  country  banker  and  merchant  are 
hemmed  in  by  a  narrow  environment.  Each  of  the  latter 
may  have  done  all  that  could  possibly  be  done  to  increase  his 
business,  keep  down  costs  and  increase  net  revenues. 

Suppose  that  two  brothers  go  into  business,  one  going  to 
the  city,  the  other  preferring  to  remain  in  the  home  town. 
The  one  in  the  city  has  a  fortune  of  a  million  dollars  at 
the  end  of  twenty  years,  while  the  country  brother  has  accu- 


114  SOCIAL  UNREST 

mulated  only  fifty  thousand  dollars.  It  would  be  unfair  to 
conclude  that  one  was  twenty  times  more  successful  than 
the  other.  We  must  not  forget  that  while  money  profit  is 
the  aim  of  business,  yet  men  are  influenced  by  many  other 
motives  when  they  choose  a  business  or  its  location.  Money 
is  the  tangible  reward  of  successful  business,  but  money  is 
not  everything  that  is  worth  while  in  life.  Doubtless  thou- 
sands of  merchants  potentially  as  capable  as  the  brilliant 
Marshall  Field  or  A.  T.  Stewart,  are  conducting  successful 
businesses  in  the  small  towns  and  cities  of  the  United  States. 
To  many  of  these  the  larger  pecuniary  rewards  of  success- 
ful enterprise  in  great  cities  possess  no  charm  or  temptation. 

To  judge  wisely  therefore  of  a  man's  success  in  business, 
we  must  know:  First,  has  he  accomplished  what  he  himself 
set  out  to  do?  Second,  has  the  volume  of  his  business  been 
as  large  as  was  warranted  by  its  location?  And,  third,  has 
its  management  been  so  sound  that  profits  have  been  as 
large  as  could  reasonably  be  expected? 

13.  Dignity  and  importance  of  business. —  To  people  who 
are  not  well  read  in  history  and  fiction  it  might  seem 
strange  that  an  author  should  think  it  necessary  to  prove 
that  business  is  an  important  and  worthy  occupation.  To 
them  it  will  seem  perfectly  obvious  that  business  is  both  im- 
portant and  most  worthy,  yet  only  a  generation  ago  if  a  boy 
chose  to  be  a  lawyer  or  a  doctor  or  a  preacher  his  parents 
took  pride  in  the  fact,  and  viewed  with  more  or  less  uncon- 
scious pity  those  friends  whose  sons  had  gone  into  business. 


BUSINESS  CLEARLY  EXPLAINED          115 

In  Europe  fifty  years  ago  business  was  thought  something 
altogether  too  vulgar  to  engage  the  attention  of  the  nobility, 
and  two  thousand  years  ago,  when  business  was  compara- 
tively simple,  especially  among  the  Greeks  and  Romans, 
business  matters  were  attended  to  either  by  slaves  or  by  a 
class  of  citizens  much  despised.  To  devote  one's  life 
merely  to  the  making  of  money  was  deemed  ignoble  and 
unworthy.  How  much  finer  to  be  an  orator,  a  warrior,  a 
poet,  a  painter  or  a  sculptor! 

It  would  be  a  waste  of  time  to  make  comparisons  and 
try  to  determine  whether  one  calling  is  finer  or  nobler  than 
another.  Men  are  born  into  the  world  with  different  ca- 
pacities, and  it  should  be  the  duty  and  ambition  of  each  to 
do  that  work  which  he  can  do  best,  and  to  put  all  his  soul 
into  it,  whether  he  write  poetry,  paint  pictures,  play  the 
violin,  or  buy  and  sell  groceries.  Then  each  will  deserve 
respect  and  honor.  This  truth  is  now  clearly  recognized  in 
Great  Britain,  many  of  whose  great  business  men  have  been 
knighted,  while  in  the  United  States  our  leading  universi- 
ties do  honor  to  themselves  by  conferring  honorary  degrees 
upon  men  of  distinguished  service  in  trade  or  industry. 

When  we  consider  the  fact  that  the  rendering  of  services 
to  humanity  is  an  essential  element  of  business  and  that  no 
business  man  can  long  be  successful  if  he  fail  to  render 
service,  we  must  admit  that  a  great  business  man  deserves 
honor  and  respect  just  as  does  a  great  lawyer  or  physician. 
The  adjective  "  commercial  "  cannot  be  justly  used  to  imply 


ii6  SOCIAL  UNREST 

reproach  or  contempt.  To  be  sure,  business  may  be  done  in 
dishonorable  fashion.  There  may  be  lying,  cheating,  mis- 
representation. But  these  evils  are  also  found  in  the  pro- 
fessions. In  the  long  run,  both  in  the  professions  and  in 
business,  they  work  against  great  success.  Business  as  a 
calling  cannot  be  impaled  because  some  grocer  uses  loaded 
scales  or  because  now  and  then  a  banker  embezzles  the  funds 
of  his  trusting  depositors. 

Criticism  of  business  is  usually  directed  most  violently 
against  the  trading  classes.  It  is  assumed  that  the  merchant 
is  a  parasite  producing  nothing  and  living  off  the  necessities 
of  the  community.  That  this  assumption  is  a  fallacy  is 
clearly  shown  in  the  Modern  Business  Text  on  "  Economics 
of  Business." 

Modern  methods  of  distributing  commodities  are  the 
product  of  competitive  forces  and  are  doubtless  imperfect 
in  many  respects,  yet  the  merchant  who  is  doing  his  best  to 
satisfy  the  wants  of  his  customers  and  is  doing  it  honestly, 
is  performing  a  real  service  for  society  and,  as  a  rule,  is  not 
overpaid  for  it. 

Business  has  made  our  civilization  possible.  If  we  should 
return  to  methods  of  trading  in  vogue  a  thousand  or  more 
years  ago,  even  tho  the  industrial  world  retained  all  of  its 
machinery  and  processes,  our  national  wealth  would  disap- 
pear in  a  few  years.  The  farmers'  great  markets  would 
vanish  and  production  would  come  to  a  standstill.  The  debt 
society  owes  to  business  is  so  obvious  and  so  great  that  there 


BUSINESS  CLEARLY  EXPLAINED         117 

should  be  no  excuse  for  an  author  to  devote  a  page  to  a  dis- 
cussion of  this  sort.  But  there  is  an  excuse.  It  is  the  igno- 
rant and  often  vicious  hostility  to  business  frequently  mani- 
fested, and  the  untrue  assumption  that  our  wealth  is  wholly 
the  creation  of  farmers  and  factory  hand-workers. 

14.  Business  as  a  job. —  Many  employes  of  business  con- 
cerns think  and  speak  of  their  positions  as  "  jobs."  To 
them  the  job  means  more  or  less  disagreeable  work  for  eight 
or  ten  hours  a  day.  Their  compensation  may  be  on  a 
weekly  basis,  in  which  case  it  is  called  wages,  or  it  may 
have  an  annual  rating  and  be  called  a  salary. 

The  typical  man  with  a  "  job  "  is  very  much  given  to 
thinking  that  he  is  overworked  and  underpaid;  he  is  glad 
when  the  day  is  over,  for  the  job  means  hard  work  and  no 
pleasure. 

He  also  has  a  habit  of  thinking  that  mere  length  of  serv- 
ice entitles  him  to  increased  pay  or  to  promotion  to  a  bet- 
ter job. 

He  often  is  heard  to  complain  about  the  big  salaries  that 
are  paid  to  men  who  do  not  do  half  the  work  he  does.  He 
usually  has  a  special  grudge  against  his  immediate  superior, 
the  man  who  directs  his  work.  He  is  certain  that  he  works 
harder  than  that  fellow  and  that  his  work  is  not  appre- 
ciated. 

If  a  few  months  elapse  without  any  increase  in  his  pay 
envelope,  he  complains  to  his  friends  that  his  job  has  no 
future  in  it.  You  hear  him  say:  "All  the  places  down 


ii8  SOCIAL  UNREST 

there  are  already  filled  and  there  is  no  chance  for  a  live 
young  fellow  like  me.  I  want  to  get  into  some  place  where 
there  is  a  chance  te  climb  up." 

The  trouble  with  men  of  this  kind,  and  unfortunately, 
they  are  numerous,  is  that  they  do  not  know  what  business 
means.  They  ignorantly  think  of  themselves  as  business 
men,  whereas  they  are  mere  routine  job  holders,  thinking 
more  about  their  pay  than  they  do  about  the  possibilities  of 
their  job,  or  of  how  they  can  make  it  helpful  to  them  in 
places  higher  up. 

There  is  a  sense  in  which  every  business  "  job  "  is  a  gold 
mine.  The  man  who  works  for  the  gold  in  the  job  rather 
than  for  the  money  in  the  pay  envelope,  is  the  fellow  who 
gets  on.  Then,  no  matter  how  humble  his  job,  he  is  learn- 
ing the  A  B  C  of  business. 

But  our  typical  "  job  man  "  is  doomed  to  be  a  drudge  all 
his  days.  Business  is  much  more  than  a  "  job." 

15.  Business  as  a  fascinating  game. —  Not  till  the  reader 
has  finished  the  twenty-four  volumes  of  the  Modern  Busi- 
ness Text  will  he  have  at  hand  all  the  evidence  justifying 
the  foregoing  sidehead.  Yet  we  may  give  him  a  glimpse  of 
the  truth. 

A  game  is  ordinarily  thought  of  as  play,  but  when  you 
analyze  some  of  the  most  interesting  games,  such  as  base- 
ball, tennis  and  golf,  you  will  find  in  all  of  them  what  is 
called  work  when  the  element  of  interest  is  lacking.  Seek- 
ing for  the  element  of  interest  which  makes  the  "  work  "  a 


BUSINESS  CLEARLY  EXPLAINED         119 

pleasure,  you  will  find  it  in  three  circumstances:  first,  the 
number  of  difficulties  and  obstacles  in  the  way  of  successful 
play;  second,  in  the  joy  the  human  animal  takes  in  triumph- 
ing over  obstacles,  particularly  if  at  the  same  time  he  has 
proved  himself  the  better  fellow;  third,  in  the  freakish  be- 
havior of  the  goddess  of  chance,  which  accounts  for  the 
charm  of  gambling. 

All  these  interesting  game  elements  are  found  in  business, 
and  your  real  business  man,  if  he  is  in  good  health,  gets  as 
much  pleasure  out  of  his  day's  "  work  "  as  he  ever  did  out 
of  any  game  he  played  as  a  boy.  In  fact,  some  men  get  so 
engrossed  in  their  business  —  which  is  only  another  way  of 
saying  they  get  so  much  satisfaction  out  of  its  conduct  — 
that  they  devote  practically  all  their  waking  hours  to  it  and 
cannot  be  persuaded  to  give  it  up  even  after  they  have  accu- 
mulated much  more  money  than  they  or  their  families  can 
ever  need.  Of  course,  this  policy  is  a  mistake.  Not  only 
is  a  man's  health  likely  to  break  down  if  he  overplays  the 
business  game,  but  he  fails  also  to  get  the  most  out  of  life. 
He  breaks  one  of  the  fundamental  laws  of  psychology,  that 
of  variety,  which  is  founded  on  the  well-known  fact  that 
pleasures  pall  as  a  result  of  frequent  repetition.  Children 
unconsciously  obey  this  law  and  are  forever  varying  their 
games. 

But  business  is  such  a  fascinating  game  to  the  man  who  is 
really  interested  in  its  principles  that  many  men  keep  on 
playing  it  to  the  exclusion  of  all  other  games,  and  are  with 


120  SOCIAL  UNREST 

the  greatest  difficulty  persuaded  by  their  relatives  to  abandon 
it  when  old  age  comes  on.  Frequently  we  read  in  the  news- 
papers about  the  death  of  some  octogenarian  of  whom  it  is 
said,  "  He  was  at  his  desk  only  a  few  days  before  his  death," 
or  "  He  has  not  missed  a  day  at  his  office  in  forty  years." 
Young  men  cannot  understand  such  interest  and  wonder 
why  the  old  man  with  all  his  wealth  still  kept  on  working. 
They  do  not  realize  that  to  him  it  was  not  work.  He  loved 
the  game  and  since  death  had  to  come,  he  wanted  to  die 
playing.3 

3  Vol.   I,   "  Modern    Business,"    pp.   37-60.    By  courtesy   of   the 
Alexander  Hamilton  Institute. 


XIII 
THE  TRUST 1 

F.  W.  TAUSSIG 

The  trust  company  has  often  been  called  the  omnibus  of 
financial  institutions.  It  deserves  the  name;  for  it  often 
discharges  many  duties.  It  may  serve  as  a  commercial  or 
a  savings  bank.  It  may  act  as  an  insurance  company,  a 
trustee  or  a  financial  agent,  or  a  transfer  agent  for  individ- 
uals or  corporations,  or  even  a  receiver  in  cases  of  insolvency 
or  bankruptcy. 

But  like  our  other  business  organizations  the  trust  has 
been  a  development.  For  twenty  years  after  the  Civil  War 
competition  was  regarded  without  question  as  the  life  of 
trade.  As  capitalization  became  enormous  and  profits  fabu- 
lous, competition  passed  from  the  "  cut-throat  "  stage  into 
the  "  combination  "  era.  "  Big  Business  "  was  the  result, 
and  by  the  time  Theodore  Roosevelt  came  to  the  White 
House  in  1901,  "  muck-rakers  "  were  in  full  swing  and  piti- 
less publicity  was  beginning  for  trusts  of  many  types. 

President  Roosevelt  at  last  divided  trusts  into  "  good  " 
and  "  bad,"  and  to  the  latter  gave  no  quarter.  But  he 
brought  to  them  the  historical  point  of  view.  He  saw  their 
background.  He  knew  they  were  but  one  of  many  questions 
to  be  answered  by  the  public.  Before  the  Union  League  in 
Philadelphia,  November  22,  1902,  he  said :  "  Time  may  be 
needed  for  making  the  solution  perfect.  But  we  have  the 
power  and  we  shall  find  the  way.  We  shall  not  act  hastily 
or  recklessly;  but  we  have  firmly  made  up  our  minds  that  a 

1  "  Principles  of  Economics,  II,"  pp.  419-423. 

121 


122  SOCIAL  UNREST 

solution,  and  a  right  solution,  shall  be  found,  and  found  it 
will  be." 

i.  Attempts  at  combination  and  monopoly  are  as  old  as  in- 
dustry. In  European  countries,  during  the  earlier  stages 
of  their  economic  development,  such  attempts  were  subject 
to  prohibition  and  penalty.  During  the  modern  period  the 
trend  has  been,  until  very  recent  years,  to  let  them  take  care 
of  themselves,  competition  being  relied  on  to  keep  prices  at 
a  fair  or  normal  level.  In  English-speaking  countries  it 
has  hitherto  been  supposed  sufficient  simply  to  prevent  the 
enforcement  of  agreements  for  combination.  Under  our 
common  law,  contracts  in  restraint  of  trade  are  void.  They 
are  not  per  se  punishable;  but  they  cannot  be  enforced  in 
the  courts.  Just  what  constitutes  a  contract  in  restraint  of 
trade,  such  as  the  courts  will  hold  void,  has  been  the  occa- 
sion of  nice  legal  discrimination.  Some  agreements  which 
restrict  competition  are  adjudged  to  be  "  reasonable,"  and 
the  parties  to  them  will  be  held  to  their  contracts.  Others 
are  adjudged  to  be  "  unreasonable,"  and  will  not  be  enforced. 
The  line  of  distinction  is  in  principle  clear  enough :  those 
agreements  are  bad  which  tend  to  bring  a  range  of  prices 
higher  than  that  ensuing  under  free  competition. 

It  is  astonishing  how  effective  this  simple  policy  of  indif- 
ference has  been.  Combinations,  pools,  and  price  agreements 
among  manufacturers  and  dealers  have  been  among  the  most 
common  phenomena  of  modern  industry.  Almost  invariably 
(unless  bolstered  up  by  some  independent  cause  conducive  to 


THE  TRUST  123 

monopoly  control)  they  have  gone  to  pieces  of  themselves. 
The  persons  forming  them  have  been  both  shortsighted  and 
covetous.  It  has  often  been  the  case  that  all  would  have 
made  larger  gains  if  all  had  stuck  to  their  restrictive  agree- 
ments. But  each  has  been  desirous  of  increasing  his  own 
particular  gains,  and  each  has  been  suspicious  of  his  asso- 
ciates. The  usual  result  has  been  that  price  combinations 
are  no  sooner  made  than  broken,  with  much  lament  that 
there  is  so  little  honor  among  these  quasi- thieves.  Even 
where  the  would-be  monopolists  have  held  together  for  a 
while,  competition  from  outside  has  soon  caused  their  com- 
pact to  crumble  away.  Usually  the  outside  competitors  also 
have  been  covetous  and  shortsighted,  failing  to  see  that  their 
own  entrance  into  the  field  tended  to  destroy  the  very  gains 
in  which  they  were  trying  to  share.  The  truth  is  that  few 
men,  in  business  or  in  other  doings,  look  beyond  the  present 
and  immediate  future.  Had  they  a  more  resolute  and  in- 
telligent eye  to  ultimate  results,  the  policy  of  letting  people 
try  at  monopoly,  but  refusing  legal  sanction  to  their  monop- 
olistic agreements,  would  have  proved  much  less  effective. 

But  in  our  own  day  the  situation  is  changing  fast,  at  least 
in  many  directions.  Far-reaching  plans  and  ultimate  results 
play  a  greater  and  greater  part  in  industry.  Still  more  im- 
portant is  the  fact  that,  as  large-scale  production  spreads, 
the  number  of  individual  establishments  diminishes,  and  the 
entrance  of  new  competitors  grows  increasingly  difficult. 
The  attempts  at  combination  become  more  persistent  and  in- 


124  SOCIAL  UNREST 

genious,   and   the  efficacy  of   a   policy   of   non-interference 
becomes  more  uncertain. 

2.  First  among  the  modern  endeavors  in  the  United 
States  to  prevent  the  disintegration  of  non-enforceable  agree- 
ments and  so  secure  a  right  combination,  was  the  trust  de- 
vice, which  gave  to  the  term  "  trust "  a  new  meaning  now 
embodied  in  familiar  usage.  Large-scale  operations  being 
commonly  conducted  under  corporate  organization,  it  was 
arranged  that  the  holders  of  stock  in  the  several  companies 
to  be  combined  should  all  transfer  their  shares  to  a  few 
selected  persons  as  trustees;  these  trustees  then  holding  the 
shares,  and  having  the  rights  of  vote  and  control  which 
belong  to  titular  shareholders,  but  being  under  obligation  to 
manage  the  property  for  the  benefit  of  their  cestuis  (to  use 
the  legal  phrase)  and  to  turn  over  to  these  all  dividends 
and  profits.  Thus  the  scattered  owners  and  their  enter- 
prises would  be  tied  irrevocably  to  the  combination,  and 
the  trustees,  as  nominal  stockholders,  would  control  every- 
thing in  their  own  hands;  while  at  the  same  time  the  sum- 
mary control  over  trustees  by  courts  of  equity  would  prevent 
over-reaching  of  the  owners  by  these  trustees.  It  was  an 
ingenious  device,  but,  as  it  proved,  one  to  which  the  courts 
refused  to  give  the  expected  legal  solidity.  In  a  test  case 
it  was  held  further  that  a  corporation  which  practically 
divested  itself  in  such  fashion  of  its  independence  was  sub- 
ject to  dissolution.  This  particular  method  of  securing 
tight  combination  was  accordingly  given  up  in  the  industries 


THE  TRUST  125 

in  which  it  was  tried.  The  only  permanent  outcome  was 
that  the  word  "  trust "  came  to  be  attached  in  popular  par- 
lance to  any  and  every  sort  of  combination,  and,  indeed,  to 
any  and  every  sort  of  large-scale  operation.2 

The  holding  company  formed  the  next  stage,  and  indeed 
is  still  the  prevalent  stage  in  the  United  States.  A  cor- 
poration is  formed  which  acquires  the  stocks  of  the  several 
combining  concerns, — either  all  of  the  shares,  or  enough  to 
give  control.  Its  directors  thus  become  the  effective  man- 
agers, just  as  the  trustees  under  the  trust  scheme  were  de- 
signed to  be.  The  original  corporations  retain  their  exist- 
ence, and  nominally  continue  to  do  business  as  before;  but 
all  control  is  united  in  one  board.  This  device,  nowadays 
so  familiar,  has  the  advantage,  for  the  would-be  monopolists, 
of  achieving  the  result  and  at  the  same  time  concealing  it. 
It  may  easily  be  made  to  appear  that  no  combination  at  all 
has  been  effected.  It  has  other  tactical  advantages,  too; 
there  are  wheels  within  wheels,  holding  corporations  for  the 
original  holding  corporation,  and  thus  not  only  further  con- 
cealment, but  easy  possibility  of  manipulation  by  a  small 
knot  of  insiders.  These  same  results  are  in  the  main  dis- 
advantageous from  the  public  point  of  view;  they  bring 
obscurity,  mendacity,  stockjobbing,  danger  of  corruption. 

2  This  "  trust "  device  was  first  used  by  the  Standard  Oil  combina- 
tion. The  Sugar  Refiners  tried  it  later,  and  it  was  in  their  case 
that  the  courts  refused  to  apply  the  law  as  had  been  calculated  by 
the  astute  lawyers  who  had  framed  the  scheme.  These  enterprises, 
and  the  others  that  tried  it,  have  all  turned  to  other  forms  of 
combination. 


126  SOCIAL  UNREST 

There  is  a  strong  disposition  to  put  a  check  on  the  holding 
company  device,  which  can  easily  be  done  by  prohibiting  a 
corporation  from  being  a  shareholder  of  another  corpora- 
tion.3 

The  last  stage,  and  the  one  to  which  the  others  lead,  is 
simply  that  of  the  great  or  giant  corporation,  into  which  all 
the  former  competing  enterprises  are  formally  and  com- 
pletely merged.  The  holding  corporation  tends  to  develop 
into  this,  its  constituent  (or  subordinate)  parts  being  de- 
prived of  their  nominal  independence,  and  the  shareholders 
becoming  direct  shareholders  in  the  single  company.  The 
indications  now  (1910)  are  that  the  attainment  of  this  final 
stage  of  compact  combination  will  be  accelerated  by  the 
very  endeavors  of  our  law  to  suppress  combination.  Under 
the  prohibitory  statute  of  1890  (the  so-called  Sherman  Act), 
a  holding  company  would  seem  to  be  unlawful,  and  subject 
to  dissolution,  on  the  simple  ground  that  it  obviously  stifles 
competition  between  the  subordinate  corporations  held  to- 
gether by  it.  Whether  the  completely  unified  corporation, 
made  up  de  novo  from  the  others  that  completely  disappear 
as  corporations,  stifles  competition,  and  hence  becomes  sub- 

3  This  power  —  to  hold  the  stock  of  another  corporation  —  never 
belongs  to  a  corporation  under  English  and  American  law,  unless 
given  in  express  terms  by  the  grant  of  its  charter  from  the  sovereign 
power.  In  the  absence  of  express  grant,  such  holding  is  ultra  vires. 
Our  American  states  have  been  so  complaisantly  liberal  in  their 
laws  as  to  incorporation,  and  have  so  frequently  given  the  power, 
that  most  people  are  unaware  of  its  being  dependent  on  specific 
authorization,  and  do  not  know  how  easy  it  is  — given  only  the 
will  —  to  check  this  form  of  combination. 


THE  TRUST  127 

ject  to  the  prohibitions  of  the  statute,  is  a  question  much 
less  easy  to  decide;  since  it  involves  inquiry  as  to  the  rela- 
tions between  the  consolidated  company  and  its  "  outside  " 
rivals.  As  will  appear  in  the  course  of  this  chapter,  it  is 
often  difficult  to  make  out  whether  such  a  company  attains 
a  monopoly,  even  whether  it  strives  to  attain  one ;  still  more 
difficult  to  decide  what  is  wise  policy  in  dealing  with  such  a 
real  or  would-be  monopoly.  Yet  these  problems  will  have 
to  be  faced  before  long  both  by  the  judges  and  by  the  legis- 
lators; for  the  holding  company  is  likely  to  be  succeeded  by 
the  form,  less  vulnerable  before  the  law  as  it  now  stands, 
of  complete  consolidation. 


XIV 

BIG  BUSINESS  AND 
THE  CITIZEN1 

BY  HOLLAND  THOMPSON 

The  trust  problem  looks  so  hopeless  to  the  average  man 
because  the  talk  about  it  is  so  abstract. 

No  essay  on  competition  can  excite  the  same  interest  as  a 
talk  with  a  competitor.  No  discussion  of  monopoly  is  half 
so  absorbing  as  an  interview  with  a  monopolist.  In  oar 
desire  to  be  profound  we  have  succeeded  in  being  either  con- 
fused or  silly. 

Why  must  calm  discussion  of  monopoly,  the  most  human 
of  forces,  expressing  as  it  does  one  of  the  fundamental  facts 
of  our  natures,  be  dehumanized?  For  that  matter 
"  Trusts,"  that  is  to  say,  the  driving  power  behind  the  com- 
binations of  capital,  are  not  forces.  They  are  folks  first 
and  forces  afterward.  Will  it  not  throw  light  upon  the 
whole  matter  to  discuss  these  folks  in  their  relation  to  the 
other  individuals  concerned?  May  we  not  simplify  the 
subject,  immense  as  it  is  and  complicated  as  it  seems,  by 

1  Robert  Lanier  had  been  working  on  this  chapter  for  several 
months,  and  had  accumulated  a  great  quantity  of  material,  which 
he  had  begun  to  arrange  when  he  died. 

129 


130  SOCIAL  UNREST 

elimination?     May  we  not  get  rid  of  familiar  factors,  find 
what  is  new,  and  examine  that? 

This  article  is  the  beginning  of  such  an  attempt.  It  deals 
with  the  Individual  Citizen  in  his  relation  to  the  managers 
of  "  big  business."  Succeeding  articles  will  take  up  the 
Borrower,  the  Laboring  Man,  the  Investor,  the  Middleman 
and  the  Captain  of  Industry.  The  purpose  is  to  limit  the 
field,  to  ascertain  the  facts,  to  discover  a  tendency,  not  to 
denounce  a  conspiracy.  It  is  assumed  that  under  the  same 
circumstances  individuals  behave  in  much  the  same  way. 

The  successful  promotion  of  one  monopoly  —  perhaps  the 
most  important  to  America, —  hung  upon  a  woman's  change 
of  mind. 

The  lady's  name  is  withheld  for  the  present,  for  reasons 
which  will  appear  later.  It  is  enough  to  say  that  she  was 
rich,  and  influential,  through  family  and  social  position. 
She  had  undisputed  control  of  her  fortune,  and  naturally 
her  secretaries  were  swamped  with  schemes  suggested  for 
the  investment  of  her  funds. 

One  promoter  presented  a  plan  to  secure  a  monopoly  of  a 
profitable  field,  which  had  long  been  divided  between  two 
trusts.  These  made  up  in  forcefulness  of  action  what  they 
lacked  in  organization,  and  had  been  able  to  eliminate  the 
independent  trader  and  now  the  stronger  seemed  to  be  on 
the  point  of  crushing  the  weaker. 

The  business  problem  hinged  upon  transportation.     The 


BIG  BUSINESS  AND  THE  CITIZEN        131 

company  in  control  of  freight  rates  was  bound  to  win.  As 
it  happened,  in  spite  of  their  monopoly,  the  two  trusts  in 
command  of  the  field  were  doing  business  at  a  constantly 
increasing  cost,  and  both  had  suffered  some  serious  losses. 
The  cost  to  the  consumer  was  growing  heavier,  but  so  great 
was  the  demand  for  the  goods,  largely  because  they  minis- 
tered to  vanity,  that  a  wide  market  was  assured  at  any 
price. 

The  ingenious  promoter,  who  had  neglected  his  own  pn> 
fession  for  years  while  unsuccessfully  seeking  to  interest 
capital  in  his  plan,  had  worked  out  a  scheme  which  would 
cut  costs  of  transportation  to  the  bone,  and  therefore  the 
new  company  would  be  able  to  undersell  the  others  to  such 
an  extent  that  an  absolute  monopoly  would  probably  result. 
The  original  producers  and  the  consuming  public  would  both 
be  forced  to  accept  the  trust's  own  terms. 

The  plan  was  simple  —  on  paper  —  too  simple,  the  lady's 
advisers  thought;  but  the  promoter  was  persistent  and  some 
of  them  were  won  over.  The  question  of  terms  came  up. 
The  promoter  demanded  the  sole  management,  his  compen- 
sation to  be  one-tenth  of  the  net  profits,  and  also  the  right 
to  subscribe  for  one-eighth  of  all  issues  of  stock.  From  this 
he  would  not  budge.  Negotiations  fell  through,  and  the 
disappointed  promoter  left  to  seek  other  backers. 

Here  the  woman's  whim  entered.  A  speculating  capital- 
ist of  Hebrew  descent,  with  the  gift  of  financial  prophecy 
so  strong  in  his  race,  painted  for  her  a  vivid  picture  of  the 


132  SOCIAL  UNREST 

possible  profits,  as  well  as  other  advantages  —  if  the  scheme 
did  work.  The  lady  changed  her  mind,  recalled  the  pro- 
moter, and  the  trust  was  launched. 

Though  not  everything  expected  was  gained,  success  fol- 
lowed, but  trouble  also  arose.  The  promoter  was  a  man  of 
broad  views,  a  visionary  even.  One  of  his  reasons  for  de- 
manding such  a  large  share  of  the  profits  was  his  desire  to 
devote  it  to  certain  religious  and  philanthropic  purposes. 
His  subordinates,  however,  responded  less  to  his  influence 
than  to  the  spirit  of  the  promotion,  which  was  simply  a 
combination  of  money  and  genius  to  exploit  producer  and 
consumer  alike.  The  producers  suffered  most.  Their  story 
is  in  fact  a  tragedy. 

Like  so  many  pioneers  in  other  fields,  the  promoter  did 
not  realize  the  profits  he  had  anticipated.  Charged  with 
the  responsibility  for  internal  dissensions,  he  was  deposed, 
and  for  a  time  imprisoned.  He  died  a  disappointed  man 
and  his  philanthropic  purposes  were  never  realized. 

All  of  this  sounds  modern.  You  have  read  such  stories 
in  the  magazines  and  newspapers,  but  this  contract  was 
dated  April  17,  1492. 

The  lady  was  Queen  Isabella  of  Castile;  the  "  field,"  the 
East  India  trade  (see  map)  ;  the  capitalist,  Luis  of  the  Sant- 
angel  family,  the  Rothschilds  of  the  fifteenth  century. 

The  two  trusts  which  had  controlled  the  field  were  the 
trading  cities  of  Venice  and  Genoa,  which  were  the  ter- 


BIG  BUSINESS  AND  THE  CITIZEN        133 

minals  of  the  combined  land  and  sea  routes  to  the  Indies. 

The  promoter  was  Christopher  Columbus ; 2  his  religious 
purpose,  the  expulsion  of  the  Turks. 

The  busy  Citizen  has  somehow  come  to  believe  that  the 
trust  or  monopoly  is  a  modern  invention.  He  thinks  that 
it  is  a  peculiar  development  of  the  last  twenty  or  thirty 
years  in  the  United  States,  though  he  has  a  vague  idea  that 
something  of  the  sort  has  developed  in  Europe.  Why  else 
did  a  score  of  intelligent  citizens  to  whom  this  story  was 
told  fail  to  identify  it,  though  all  of  them  had  read  history? 
Tell  the  story  to  your  friends,  and  see  if  they  can  guess  the 
answer. 

Every  step  is  typical  of  modern  trust-hatching  in  the 
twentieth  century.  Ideas  and  capital  meet,  and  struggle  for 
the  advantage.  An  agreement  is  reached  and  they  combine 
against  the  public  which  has  not  been  consulted  at  all.  This 
story  of  Columbus  suggests  that  some  features  of  trust  prac- 
tice are  at  least  four  hundred  years  old.  Other  instances 
will  be  given  later. 

Any  mixed  group  of  citizens,  in  the  village  store,  in  the 
smoking  car,  at  the  club,  or  the  golf  links,  will  agree  that 
the  trust  is  something  new,  but  they  will  disagree  on  every 
other  aspect  of  the  problem.  Some  feel  that  they  are  a 

2  Popular  histories  fail  to  emphasize  the  business  side  of  the  dis- 
covery of  America.  These  statements  above  can  be  verified  by 
reference  to  Las  Casas,  Harrisse,  Winsor,  Fiske,  etc.  Prescott  gives 
a  vivid  account  of  the  cruelties  toward  the  natives.  The  interpre- 
tation only  is  new. 


134  SOCIAL  UNREST 

natural  evolution,  necessary  and  laudable;  some,  though 
resentful,  are  resigned;  others  would  restrain,  control,  dis- 
solve or  even  destroy  these  Frankenstein's  monsters  of  the 
twentieth  century,  but  all  make  the  same  assumption  of 
novelty. 

We  are  told  that  there  is  in  existence  a  "  secret  conspir- 
acy "  involving  a  concentration  in  a  few  hands  of  all  the 
country's  industries  a-nd  even  of  all  the  very  life  blood  of 
industry  —  banking.  The  charge  has  interested  the  House 
of  Representatives  and  the  Committee  on  Banking  and  Cur- 
rency has  been  instructed  to  investigate  the  "  Money  Trust  " 
—  a  power  so  well  concealed  that  neither  its  officers  nor  its 
address  is  known  to  the  public. 

All  speak  glibly  of  trusts,  and  yet,  strange  to  say,  few 
persons  can  agree  on  a  definition  of  a  trust,  nor  can  they 
draw  the  dividing  line  between  legitimate  business  and  un- 
lawful practices.  Of  course,  there  are  extremes,  mani- 
festly lawful,  or  the  contrary,  but  all  agree  that  between 
lies  a  "  twilight  zone," —  to  adapt  William  J.  Bryan's  phrase 
to  other  conditions, —  which  is  dim  and  mysterious. 

In  the  attempts  to  enforce  the  Sherman  law,  more  than 
one  hundred  actions  have  been  brought.  Many  of  them 
have  reached  the  Supreme  Court  and  decisions  have  been 
handed  down.  In  its  decisions  in  the  Standard  Oil  and  the 
American  Tobacco  cases  that  tribunal  has,  so  we  are  told, 
modified  its  earlier  position  by  the  insertion  of  the  word 
"  reasonable"  into  the  statute,  and  with  what  result? 


BIG  BUSINESS  AND  THE  CITIZEN        135 

Chairman  E.  H.  Gary  of  the  United  States  Steel  Cor- 
poration, who  believes  firmly  in  the  economic  and  moral  jus- 
tification of  combinations  of  competing  units,  and  who  cer- 
tainly cannot  be  said  to  be  lacking  astute  counselors  in  mat- 
ters legal,  said  some  time  ago: 

I  know  it  is  very  easy  to  say  the  law  is  simple  and  clear 
and  the  corporation  now  knows  exactly  what  to  do,  but  I 
do  not  agree  with  the  statement.  I  know  that  it  is  not  the 
fact.  I  know  that  we  have  been  in  a  position  of  great  un- 
certainty during  the  last  few  years,  and  particularly  during 
the  last  few  months.  We  have  been  very  much  troubled  to 
know  just  exactly  what  our  position  ought  to  be,  what  our 
conduct  ought  to  be,  and  as  a  result  there  has  been  created 
in  this  country  a  feeling  of  great  uncertainty  and  doubt. 
.  .  .  These  men  would  like  to  know  what  they  can  do; 
what  they  have  the  right  to  do ;  what  they  have  the  right 
to  do  from  the  standpoint  of  observance  of  the  laws,  and 
from  the  standpoint  of  public  sentiment,  which  is  just  as 
important  to  consider ;  and  they  would  not  only  like  to 
know  that  for  their  present  action,  but  they  would  like  to 
know  it  for  their  future  action. 

There  is  not  a  more  determined  opponent  of  monopoly 
and  monopolistic  practices  in  the  country  than  Senator  Cum- 
mins. An  able  lawyer  and  a  persevering  student  of  eco- 
nomic questions,  he  approved  the  following  statement: 
"...  these  decisions  have  rendered  the  law  so  uncertain 
and  vague  in  its  application  to  the  actual  affairs  of  business 
that  men  cannot  safely  proceed  with  the  affairs  they  have  in 
hand  —  safely  proceed  in  the  sense  that  they  do  not  know 


136  SOCIAL  UNREST 

whether  they  are  about  to  do  a  lawful  thing  or  an  unlawful 
thing." 

The  Senate  Committee  on  Interstate  Commerce  has  been 
holding  sessions  for  months.     Before  it  have  appeared  mer- 
chants, wholesale  and  retail,  manufacturers,  bankers,  law- 
yers, professors  of  economics,  officers  of  labor  unions,  farn; 
ers,  railroad  men,  and  simple  citizens.     In  other  words,  prcx 
ducers,  distributors  and  consumers.     All  of  these  have  been 
allowed  to  express  their  views  unhindered,  and  then  have 
been  questioned  by  the  able  members  of  the  Committee  rep- 
resenting every  phase  of  political  thought  current  to-day. 

Into  the  record  have  been  inserted  decisions  of  the  ablest 
judges  in  the  history  of  the  common  law,  thoughtful  studies 
of  present-day  conditions,  plans  for  paternalistic  regulation 
of  capitalization,  prices  and  profits,  well-considered  plans  for 
correcting  admitted  abuses,  vigorous  suggestions  of  confisca- 
tion of  "  ill-gotten  gains  "  and  violent  demands  for  the  pun- 
ishment of  "  malefactors  of  great  wealth."  Representatives 
of  every  school  of  thought  have  had  full  opportunity  to  ex- 
press themselves  at  length,  thanks  to  the  patience  and  for- 
bearance of  the  committee. 

.  The  two  fat  volumes  of  testimony  already  published  make 
interesting  reading.  Every  citizen  who  takes  his  political 
responsibilities  seriously  will  be  fascinated  by  their  pages 
but  will  lay  them  down  with  disappointment.  The  ablest 
students,  the  cleverest  thinkers  cannot  come  to  any  common 


BIG  BUSINESS  AND  THE  CITIZEN        137 

conclusion.  They  agree  that  trusts  exist,  but  they  cannot 
say  what  makes  a  trust;  they  agree  that  there  are,  and  have 
been,  evils,  but  they  cannot  come  together  on  methods  of 
correction,  and  in  fact,  in  that  "  twilight  zone  "  of  which 
we  spoke  above,  they  cannot  decide  whether  or  not  a  par- 
ticular course  is  evil. 

To  some  the  efficiency  and  the  economy  possible  to  large 
aggregations  of  capital  seem  so  important  that  they  are  will- 
ing to  overlook  probable,  even  inevitable  wrongs.  To 
others  the  interest  of  the  petty  competitor,  with  his  little 
shop  (though  his  establishment  may  be  economically  ineffi- 
cient) is  so  important  that  they  are  willing  to  forego  the 
undoubted  advantages  of  production  on  a  large  scale,  and 
would  try  to  maintain  the  weakling  by  the  strong  arm  of 
the  law.  Some  would  recognize  existing  and  future  com- 
binations but  would  regulate  them,  even  though  such  action 
might  mean  in  the  end  fixing  prices  by  governmental  action, 
not  only  of  the  finished  product,  but  of  the  raw  material, 
and  of  labor  itself, —  in  other  words,  a  return  to  the  regu- 
lated monopoly  of  the  Middle  Ages. 

If  the  doctors  disagree  what  hope  have  the  "  common 
people  "  of  coming  to  a  clear  decision  ?  Their  food  for 
thought  comes  chiefly  from  the  popular  orators  of  the  day 
who  represent,  generally,  only  one  phase  of  the  whole  prob- 
lem. They  dwell  upon  the  wrongs  and  compare  the  ad- 
mitted evils  of  "  big  business  "  with  those  of  monarchy  or 


138  SOCIAL  UNREST 

of  slavery.  They  preach  revolution  or  revolt,  and  some  of 
them  would  have  us  recognize  in  them  twentieth  century 
Washingtons  or  John  Browns  with  divine  commissions  to 
set  us  free. 

Why  not  compare  monopoly  with  itself?  Why  not 
study  the  trusts  of  to-day  in  the  light  of  the  trusts  of  yes- 
terday? 

Step  by  step  the  problem  will  grow  simpler.  One  by 
one  those  features  of  trust  practice  which  we  have  thought 
so  new  will  be  seen  to  be  old,  and  they  will  grow  less  im- 
portant as  we  see  how  our  fathers  met  and  dealt  with  them. 
A  series  of  interesting  parallels  will  result.  We  shall  find 
that  competition  was  the  uncommon,  and  monopoly  the  usual 
condition  of  business  in  the  past. 

Trusts  will  be  found  from  Hudson  Bay  to  the  Bay  of 
Bengal,  from  the  Baltic  to  the  Gulf  of  Mexico.  One  trust 
ruled  India  and  controlled  the  destinies  of  millions  of  peo- 
ple ;  another  made  the  Baltic  an  inland  sea,  making  treaties 
and  dethroning  monarchs  as  need  arose.  Another  financed 
the  crusaders  who  captured  Constantinople  and  set  up  a 
Latin  kingdom  there;  another,  the  London  branch  of  the 
Virginia  Company,  first  planted  permanent  English  settle- 
ments in  the  new  world.  These  were  international  monop- 
olies. Of  the  lesser  national  or  sectional  monopolies  there 
were  many.  Every  gild  organized  in  the  Middle  Ages  in- 
cluded some  features  which  we  would  call  monopolistic, 


BIG  BUSINESS  AND  THE  CITIZEN        139 

while  kings  bestowed  upon  individuals  the  sole  right  to  sell 
various  luxuries  or  necessities,  which  right  was  sold  or  leased 
to  the  merchant  or  the  producer. 

The  story  of  Joseph  in  Egypt  is  one  of  the  prettiest  ex- 
amples of  cornering  the  food  supply  and  exacting  a  monopoly 
price  therefor  of  which  we  have  record.  We  are  told  in 
Genesis  that  the  Egyptians  gave  in  exchange  for  bread  their 
money,  their  cattle,  and  finally,  their  liberty  and  their  land, 
which  they  afterward  worked  as  tenants  or  serfs  of  their 
royal  master.  Aristotle  tells  us  that  an  Athenian  citizen 
once  cornered  the  iron  market  in  Syracuse. 

Solomon  as  a  monopolist  surpasses  any  of  our  modern  trust 
magnates.  We  know  that  he  levied  heavier  toll  on  the 
caravans  passing  over  his  roads  than  the  most  grasping  trans- 
portation manager  of  the  nineteenth  century  ever  dared  to 
do.  We  are  told  in  the  Book  of  Kings  that  he  brought  linen 
yarn  out  of  Egypt,  which  his  men  of  business  sold  at  a  fixed 
price.  He  imported  war  horses  from  the  same  country  and 
sold  them  at  a  high  price  to  the  princes  and  warriors  of  the 
whole  region.  He  sent  out  trading  ships  which  brought 
back  immense  quantities  of  gold,  so  that  "  Solomon  ex- 
ceeded all  the  kings  of  the  earth  for  riches." 

In  every  case  the  aim  was  the  same:  to  get  the  business, 
to  monopolize  it,  and  the  consuming  public  paid.  Practi- 
cally every  feature  of  modern  monopoly  to  which  objection 
is  made  is  another  version  of  an  old  story  told  long  ago. 
The  methods  in  the  past  were  much  the  same  as  those  pur- 


140  SOCIAL  UNREST 

sued  to-day,  except  that  they  were  more  vigorous.  The 
little  finger  of  the  ancient  monopolist  was  thicker  than  the 
loins  of  his  degenerate  successor. 

Let  us  go  over  these  characteristics  one  by  one  to  see  if 
we  can  find  the  new  sin. 

Is  there  anything  new  about  the  bigness  of  business  as 
such  —  the  power  of  enterprise  privately  controlled? 

The  company  which  finally  got  the  monopoly  which  Co- 
lumbus sought  became  the  most  powerful  trust  in  the  world's 
history. 

This  company,  "  The  Governor  and  Company  of  Mer- 
chants Trading  in  the  East  Indies,"  received  its  charter  from 
Queen  Elizabeth  on  the  last  day  of  December,  1600,  and 
was  not  finally  dissolved  until  1874.  This  charter  besides 
granting  the  exclusive  right  to  trade  in  all  regions  beyond 
the  Cape  of  Good  Hope,  "  not  already  possessed  by  some 
Christian  prince,"  gave  the  right  to  "  acquire  territory,  coin 
money,  command  fortresses  and  troops,  form  alliances,  make 
war  and  peace,  and  exercise  both  civil  and  criminal  juris- 
diction." Truly  this  was  a  broad  grant.  Standard  Oil 
and  Steel  must  "  hide  their  diminished  heads." 

In  addition  it  was  exempted  from  export  duties  for  four 
years,  and,  if  necessary,  the  payment  of  import  duties  might 
be  delayed  until  after  the  goods  were  sold.  The  only  re- 
striction was  that  the  consent  of  the  crown  must  be  given 
to  every  voyage.  The  reason  for  this  limitation  was  prob- 
ably to  preserve  the  right  to  call  for  ships  if  another  Span- 


BIG  BUSINESS  AND  THE  CITIZEN        141 

ish  Armada  should  approach  the  coasts.     The  royal  navy 
was  then  insignificant. 

In  organization,  the  company  was  really  a  syndicate  with 
a  concession  for  the  Indian  trade,  and  from  the  members 
special  joint  stock  companies  were  organized  for  every  voy- 
age. Later  the  syndicate  became  a  joint  stock  company 
with  a  capital  stock  which  traded  on  the  account  of  all. 

The  explanation  given  for  seeking  the  charter  was  simple. 
The  price  of  pepper  had  been  raised  from  three  shillings  to 
eight  shillings  the  pound  by  the  Dutch  traders  who  had 
broken  by  force  of  arms  the  previously  existing  Portuguese 
monopoly  which  had  followed  Vasco  da  Gama's  discovery 
of  the  sea  route  to  India.  This  Portuguese  monopoly  had 
been  conducted  at  royal  risk  and  profit,  because  the  Portu- 
guese merchants  refused  to  take  the  risks.  "  Golden  Goa," 
the  story  of  which  reads  like  a  misplaced  page  from  the 
Arabian  Nights,  had  at  first  afforded  enormous  profits, 
which,  however,  were  largely  absorbed  by  dishonest  officials. 

Ostensibly  for  the  purpose  of  cheapening  the  price  of  spices 
—  does  not  this  sound  modern  ?  —  the  charter  was  asked. 
It  was  granted  and  so  this  old  leviathan  of  trusts  was  born. 
The  profits  of  the  first  voyage  averaged  more  than  one 
hundred  per  cent.,  the  fourth  and  fifth  taken  together,  234 
per  cent.  Other  voyages  were  not  so  successful,  but  the 
profits  were  large  enough  to  invite  competition,  both  of 
"  interlopers  "  and  of  companies  organized  for  the  purpose. 
The  interlopers  were  dealt  with  in  a  summary  manner. 


142  SOCIAL  UNREST 

Both  ships  and  cargoes  were  confiscated.  The  competing 
companies  were  absorbed,  in  one  case  after  a  struggle  which 
convulsed  British  politics. 

In  1682  a  dividend  in  cash  of  50  per  cent,  was  paid,  and 
at  the  same  time  a  stock  dividend  of  100  per  cent,  was  de- 
clared. The  next  year,  after  the  inflation,  a  £100  share 
sold  for  £500,  apparently  the  highest  price  on  record,  though 
this  price  was  approached  in  1720.  Between  1657  and 
1691  the  average  rate  of  dividends  was  25  per  cent.  So 
great  a  proportion  of  the  capital  of  the  country  was  engaged 
in  the  Indian  trade  that  in  1684  the  company  was  accused 
of  "  alone  devouring  half  the  trade  of  the  nation."  Can 
even  the  "  Money  Trust "  be  charged  with  such  power 
to-day  ? 

At  first  the  only  territory  controlled  was  the  concessions 
for  trading  purposes  for  which  rent  was  paid  to  the  native 
princes,  but  in  1689  it  was  decided  to  enter  upon  a  course 
of  territorial  aggrandizement.  Most  of  us  have  been  ac- 
customed to  think  of  those  great  pro-consuls,  Robert  Clive 
and  Warren  Hastings,  as  engaged  in  building  up  the  British 
Empire.  This  is  true  only  ultimately,  for  they  were  em- 
ployes of  the  East  India  Company,  and  while  they  were 
setting  up  or  pulling  down  nabobs,  confiscating  treasure,  or 
fighting  battles,  they  were  primarily  extending  the  power 
and  the  dominion  of  the  company.  To  be  sure  the  British 
Government,  in  1773,  and  again  in  1784,  asserted  its  power 


BIG  BUSINESS  AND  THE  CITIZEN        143 

to  regulate  and  control,   but  the  company  nominated  the 
officials  until  1858. 

In  1813  the  monopoly  of  the  Indian  trade  was  abolished, 
though  the  monopoly  of  the  trade  with  China  was  continued. 
In  1833  even  this  was  taken  away,  though  the  company  still 
governed  the  country  until  1858,  when,  as  a  result  of  the 
Sepoy  mutiny,  the  British  Government  assumed  full  con- 
trol. The  government,  however,  guaranteed  the  dividends 
on  the  stock,  and  not  until  1874  was  ft  a^  retired  at  loo 
per  cent,  premium. 

Here  then  is,  in  brief  outline,  the  story  of  a  monopoly 
which  from  the  India  House  in  Leadenhall  Street  governed 
millions  of  Asiatics  and  waged  bloody  wars,  not  only  with 
the  natives,  but  with  the  French  and  the  Dutch.  It  bribed 
officials  of  the  government,  had  dozens  of  self-confessed  rep- 
resentatives in  Parliament  and  spent  thousands  of  pounds 
in  subsidizing  the  press.  In  fact,  the  responsibility  for  the 
widespread  corruption  in  English  politics  in  the  eighteenth 
century  is  laid  at  its  door.  Its  history  for  the  first  hundred 
years  is  set  down  in  Sir  William  Wilson  Hunter's  "  History 
of  British  India,"  a  work  unfortunately  unfinished,  but  the 
fragment  is  a  book  which  no  student  of  economic  or  political 
problems  can  afford  to  neglect. 

The  American  citizen  has  to  contend  with  no  such  organ- 
ization as  this,  and  yet  when  it  had  done  its  work,  its  power, 
on  the  demand  of  the  British  Government,  dropped  from 


144  SOCIAL  UNREST 

it  as  a  cloak.  The  King  of  England  is  Emperor  of  India, 
but  the  East  India  Company  no  longer  exists. 

For  protection  against  pirates  in  the  Baltic,  and  for  the 
common  welfare,  the  traders  in  a  number  of  German  cities 
very  early  formed  loose  associations.  Out  of  them  ap- 
peared, already  full  grown,  early  in  the  fourteenth  century, 
the  Hanseatic  League.  At  the  height  of  its  power,  it  "  had 
three  good  crowns  at  its  disposal " ;  it  set  up  a  rival  and 
successful  king  in  Sweden;  it  twice  captured  Copenhagen 
and  drove  Waldemar  III.,  of  Denmark,  from  his  kingdom 
in  1368.  Later,  in  1523,  it  was  instrumental  in  dethroning 
Christian  II.,  it  enabled  Gustavus  Vasa  to  become  ruler  of 
Sweden,  and  once  its  armies  ravaged  the  English  coast.  The 
Baltic  became  a  Hanseatic  lake  into  which  no  other  flag 
might  enter  without  the  permission  of  the  Hansa,  a  per- 
mission rarely  granted.  Though  never  rebelling  openly 
against  the  Emperor,  the  League  treated  his  demands  with 
cold  courtesy,  and  went  its  own  way. 

First  and  last  perhaps  ninety  cities  belonged  to  the  League, 
though  the  exact  number  is  uncertain,  as  the  membership 
varied  at  different  times.  Some  of  the  cities  were  expelled 
for  disobedience  to  the  rules  of  the  League,  and  others  were 
unable  to  pay  their  assessments.  Liibeck  was  always  the 
leader,  though  Hamburg  and  Cologne  were  hardly  less  im- 
portant. In  the  cities  the  trading  classes  were  always  dom- 
inant, and  they  grew  in  wealth  and  power. 

At  London,   Novgorod,   Bergen,   and  Wisby,   the   Han- 


BIG  BUSINESS  AND  THE  CITIZEN        145 

seatic  community  was  a  state  within  a  state,  in  which  the 
laws  of  England,  Russia,  Norway  or  Sweden  did  not  run. 
At  Novgorod,  the  cloth  of  England  and  France  was  ex- 
changed for  furs,  metals,  honey  and  wax,  always  to  the 
profit  of  the  Hanseatic  trader.  At  Bergen  they  exchanged 
manufactures  of  various  sorts  for  fish. 

Nowhere  was  the  power  of  the  League  greater  than  in 
London,  where  a  district  known  as  the  Steelyard  on  the 
water's  edge,  just  above  London  Bridge,  was  the  home  of 
the  Hanseatics.  They  bought  the  wool,  hides,  grain,  beer 
and  cheese  of  the  English,  selling  them  in  return  flax,  linen, 
hemp,  fish,  wax  and  wine,  as  well  as  Oriental  products  with 
which  they  had  provided  themselves  at  Bruges,  or  even  at 
Novgorod,  where  their  traders  had  met  an  occasional  cara- 
van which  had  made  its  way  entirely  across  Asia. 

The  English  people  objected  vigorously  to  the  favors 
showered  upon  the  Hanseatics  by  their  rulers,  at  first  to  no 
purpose.  They  were  useful  to  the  kings  and  useful  also  to 
the  community,  for  they  brought  to  their  warehouses  those 
needed  goods  which  the  confusion  of  the  times  and  the  back- 
wardness of  English  workmen  rendered  unattainable  other- 
wise. Not  until  the  English  were  able  to  do  themselves 
what  the  Hansa  was  doing  for  them,  could  they  drive  it 
away. 

Bruges  first,  and  later  Antwerp,  were  the  great  clearing 
houses.  Here  the  League  did  not  demand  the  special  privi- 
leges it  had  extorted  in  the  cities  just  mentioned,  but  its  grasp 


146  SOCIAL  UNREST 

upon  the  entire  commerce  ot  Northern  Europe  was  not  loos- 
ened until  internal  dissensions  and  a  growing  lack  of  enter- 
prise weakened  the  union.  With  the  increasing  growth  of 
national  feeling  in  the  states  with  which  they  dealt,  their 
power  to  monopolize  grew  less.  Under  Elizabeth  they  were 
expelled  from  London  in  1598.  The  pupils  had  learned 
how  to  trade  from  their  German  teachers;  and  then  they 
dismissed  the  teachers.  The  Thirty  Years'  War  completed 
the  destruction. 

The  League  had  done  its  work.  It  had  carried  certain 
aspects  of  civilization  to  millions  of  barbarians.  Through 
it  the  Baltic  lands  had  advanced  in  wealth  and  intelligence. 
The  merchant  in  the  city  had  increased  in  self-respect  and 
the  power  of  the  robber  baron  had  been  held  in  check. 
Our  judgment  on  the  results  of  its  work  will  be  much  the 
same  as  on  our  present-day  monopolies.  It  was  done  self- 
ishly, and  often  roughly,  but  much  of  it  was  really  con- 
structive. 

From  the  description  of  these  two  monopolies,  the  Indi- 
vidual will  see  that  the  mere  size  of  a  combination  is  noth- 
ing new.  There  are  others,  such  as  the  Italian  City  Re- 
publics, which  might  be  named,  but  the  two  instances  given 
above  are  enough  to  show  that  there  existed  in  the  past  pro- 
portionately greater  combinations  of  capital,  with  greater 
powers,  exercised  in  a  more  ruthless  way,  than  can  be  found 
to-day. 

No  charge  against  the  trust  of  the  present  day  is  made 


BIG  BUSINESS  AND  THE  CITIZEN        147 

with  more  indignation  than  this,  and  yet  attention  has  been 
called  to  the  political  activities  of  the  East  India  Company. 
In  the  Hanseatic  League  the  governing  power  in  every  town 
was  almost  invariably  the  merchants  and  every  regulation 
was  made  with  their  advantage  in  view. 

Another  instance  no  less  striking  is  the  connection  of 
Venice  with  the  Fourth  Crusade.  The  Venetians  had 
agreed  to  transport  the  Crusaders  to  the  Holy  Land  for 
85,000  marks,  but  the  soldiers  arrived  with  only  51,000 
marks,  all  that  could  be  raised.  The  Doge  informed  them 
that  the  remaining  34,000  marks  would  be  excused  if  they 
would  take  Zara  for  the  Venetians.  This  done,  the  Cru- 
saders were  induced  to  capture  Constantinople  where  they 
established  in  1204  a  Latin  kingdom.  The  Venetians  se- 
cured a  monopoly  of  the  Eastern  trade  coming  by  the  Black 
Sea  route  (see  map)  which  they  held  until  the  Latin  king- 
dom fell  in  1261. 

No  campaign  contribution  of  the  present  day  compares 
with  the  million  pounds  which  the  East  India  Company  fur- 
nished the  government  at  low  interest,  in  1742,  in  return 
for  a  fourteen-year  extension  of  its  charter.  Imagine,  if 
you  can,  the  Standard  Oil  Company,  to  prevent  its  dissolu- 
tion, furnishing  perhaps  fifteen  million  dollars  to  the  ad- 
ministration to  finish  the  Panama  Canal. 

Go  back  four  centuries  farther.  It  seems  incredible,  but 
it  is  true,  nevertheless,  that  Crecy  and  Poitiers  were  won 
with  trust  money.  Edward  III,  a  chronic  borrower,  had 


148  SOCIAL  UNREST 

financed  his  earlier  campaigns  in  the  Hundred  Years'  War 
by  borrowing  from  the  Florentine  bankers.  His  default 
ruined  them,  and  no  one  else  would  extend  credit.  The 
Hanseatic  League  came  to  the  rescue,  loaned  the  needy  king 
£30,000,  worth  probably  more  than  two  and  a  quarter  mil- 
lion dollars  to-day,  and  received  many  favors  in  return. 

Evidently  monopoly  and  government  have  been  closely 
allied  in  the  past. 

Read  the  early  history  of  Spanish  America  and  find  the 
answer.  If  another  instance  is  needed,  study  the  attitude 
of  the  Hanseatic  League  toward  its  Russian  or  Norwegian 
producers,  or  go  to  the  history  of  all  the  East  India  Com- 
panies, Portuguese,  English,  Dutch  or  French,  especially  the 
Dutch. 

Again  go  to  the  East  India  Companies.  Confiscation  of 
ship  and  cargo  was  the  slightest  penalty  inflicted  upon  the 
intruders.  Reduction  to  slavery  was  common,  and  torture 
and  murder  were  not  infrequent.  Turn  to  the  Hansa  again 
and  find  a  similar  course  of  action.  The  competitors  of  a 
modern  trust  at  least  escape  with  their  lives. 

Coming  down  to  later  times,  the  story  of  the  Hudson's 
Bay  Company,  that  great  fur-trading  company,  chartered  in 
1670,  is  interesting.  The  free-trader,  caught  trespassing  on 
the  company's  territories,  and  then  set  free  in  the  wilderness 
without  food,  boat,  gun  or  compass,  is  an  example  of  the 
lengths  to  which  commercial  rivalry  led  men  even  in  the 
nineteenth  century.  The  contest  with  the  Northwest  Fur 


BIG  BUSINESS  AND  THE  CITIZEN        149 

Company  was  marked  by  deeds  of  which  savages  would 
hardly  be  proud.  "  If  forgotten  graves  could  give  up  their 
secrets,  they  could  tell  many  a  tale  of  violence  and  of  treach- 
ery." 

Evidently  courtesy  to  competitors  was  not  universal  in 
the  days  of  old. 

The  Dutch  knew  two  hundred  years  ago  that  often  an 
inadequate  supply  would  bring  in  larger  returns  than  a 
superfluity,  a  lesson  our  Southern  cotton  farmers  have  had 
impressed  upon  them  time  after  time,  but  which  they  obsti- 
nately or  short-sightedly  refuse  to  heed.  So  we  find  the 
Dutch  traders  uprooting  the  spice  trees  on  the  Molucca 
Islands,  and  even  burning  a  large  proportion  of  the  product 
to  keep  it  from  the  market.  The  diamond  monopoly  of 
London  and  South  Africa  has  learned  no  new  tricks.  The 
old  ones  knew  them  all. 

The  spectacle  of  men,  directors  and  officials  of  a  corpora- 
tion,—  trustees  for  the  stockholders,  in  fact  —  using  their 
positions  and  the  knowledge  gained  thereby  for  private  gain 
has  been  often  seen.  The  investigation  of  the  American  To- 
bacco Company  showed  to  what  extent  this  could  be  carried. 
Surely  this  is  new.  Again  go  back  to  the  declining  degen- 
erate days  of  the  Hansa,  and  case  after  case  of  similar  con- 
duct is  revealed.  Turn  to  the  East  India  Companies.  We 
are  told  that  the  royal  monopolist's  ship  went  back  to  Por- 
tugal half  empty,  but  that  those  loaded  by  his  officers  in 
India  returned  full.  The  British  company  evidently  did  not 


150  SOCIAL  UNREST 

expect  its  servants  to  live  upon  their  salaries  in  the  early 
days.  When  it  found,  however,  that  dozens  of  them  were 
able  to  retire  with  enormous  fortunes  after  a  few  years  of 
service,  while  the  returns  to  the  company  grew  slowly  or 
did  not  grow  at  all,  strenuous  efforts  to  stop  the  leaks  were 
made,  for  a  long  time  with  slight  success. 

This  practice  is  evidently  not  new. 

To  be  sure  these  monopolies  were  generally  mercantile 
and  not  manufacturing  —  monopolies  of  sale  and  not  monop- 
olies of  production.  The  reason  is  plain.  Before  the  days 
of  machinery  there  was  no  production  on  a  large  scale,  but 
this  fact  does  not  affect  the  soundness  of  the  argument. 
That  some  of  these  monopolies  were  granted  by  royal  favor 
is  likewise  immaterial.  Everything  which  could  be  monop- 
olized was  monopolized  at  some  time  or  other  in  the  world's 
history. 

We  find  then  that  practically  every  feature  of  the  prob- 
lem of  monopoly  to-day  has  appeared  before.  There  have 
been  monopolies  of  enormous  size,  proportionately  larger 
than  anything  we  have  to-day.  Sinister  alliance  with,  or 
influence  upon,  government  officials  was  common.  The 
monopolists  wilfully  limited  the  supply,  behaved  with  bru- 
tality toward  the  producer  of  goods  and  toward  would-be 
competitors,  and  officials  took  advantage  of  their  trusteeship 
for  private  gain.  These  are  the  most  common  charges 
against  modern  trusts  and  their  managers. 


BIG  BUSINESS  AND  THE  CITIZEN        151 

There  is,  however,  in  the  practice  of  "  big  business  "  to- 
day, a  new  sin  which  is  fundamental.  True,  it  is  not  yet 
recognized  as  a  sin,  but  it  should  be  and  must  be  declared  a 
crime.  The  sin  is  not  an  inheritance  from  the  monopolies 
of  a  remote  past,  but  has  grown  out  of  that  fierce  individ- 
ualism so  characteristic  of  American  life.  It  has  been  fos- 
tered and  developed  by  that  unrestricted,  savagely  competi- 
tive struggle  for  supremacy  which  has  been  such  a  striking 
feature  of  our  industrial  history. 

This  practice,  which  seemed  natural  and  logical  in  a 
simpler  social  and  industrial  organization  of  society,  has 
been  permitted  to  continue,  though  its  effects  to-day  are 
wholly  bad  when  viewed  in  the  large.  What,  then,  is  this 
policy  which  has  become  improper  and  even  wicked  with  the 
industrial  development  of  the  United  States? 

Our  country  and  our  times  are  not  those  of  our  ancestors, 
and  changed  conditions  have  brought  different  standards  in 
their  train.  To-day  many  acts,  once  grave  crimes,  are  con- 
sidered harmless  or  even  praiseworthy.  On  the  other  hand, 
law  and  public  opinion  now  condemn  many  practices  for- 
merly ignored.  Secrecy,  not  so  long  ago,  an  inalienable 
right,  has  become  the  new  sin  in  business.  Why  this  is  true, 
and  what  a  recognition  of  this  fact  means  to  the  Individual 
will  be  discussed  in  the  second  half  of  this  article,  to  appear 
next  month. 

The   familiar  charges   against    Big   Business   to-day   are 


152  SOCIAL  UNREST 

echoes  from  past  centuries.  The  real  sin,  from  the  stand- 
point of  the  Citizen,  is  Secrecy  from  which  the  other  evils 
spring.  Why  ? 

The  first  half  of  this  paper  showed  that  monopolies  of 
larger  proportional  size,  exercising  more  nearly  complete 
control  and  using  more  vigorous  methods  than  their  modern 
successors,  flourished  at  various  periods  in  history.  They 
were  operated  primarily  for  selfish  purposes,  but  often  the 
whole  people  shared  their  gains.  When  Society  had  done 
with  them  they  ceased  to  exist,  but  many  left  a  permanent 
contribution  to  the  general  welfare. 

The  medieval  gilds  encouraged  commerce  and  gave  sta- 
bility to  industry;  the  Hanseatic  League  broke  up  nests  of 
pirates,  served  the  public  convenience  and  carried  light  into 
darkness;  the  East  India  Company  created  the  British  Em- 
pire and  indirectly  made  the  Suez  Canal  a  reality,  instead 
of  a  dream;  the  Hudson's  Bay  Company  maintained  a  Brit- 
ish foothold  in  Canada,  explored  the  trackless  reaches  of 
the  unknown  land,  and  thereby  hastened  the  settlement, 
though  against  its  will;  even  Joseph's  corner  in  grain  fur- 
nished bread  (though  at  an  enormous  price),  when  other- 
wise there  would  have  been  none. 

So  in  its  turn  our  modern  Big  Business  has,  through  pure 
selfishness,  brought  certain  real  public  advantages  in  its 
train.  The  small  concern  was  often  unable  to  make  the 
best  combinations  of  men  and  material,  and  waste,  the 
deadly  economic  sin,  resulted.  Compare  the  speed,  comfort 


BIG  BUSINESS  AND  THE  CITIZEN        153 

and  certainty  of  railway  travel  to-day  with  what  our  fathers 
knew.  Compare  the  prices  of  hundreds  of  articles  with 
those  our  fathers  paid,  and  we  must  acknowledge  that  the 
public  has  had  a  share  in  the  economies  of  production  on  a 
large  scale. 

One  great  distinction  between  ancient  and  modern  Big 
Business,  as  it  has  developed  in  the  United  States,  is  the 
difference  in  attitude  toward  the  state.  In  former  days 
the  paramount  authority  of  the  ruler  (himself  often  a 
monopolist)  over  trade  and  commerce  was  recognized.  The 
king  did  not  always  maintain  a  consistent  control,  for  his 
administrative  system  was  not  efficient,  but  when  he  wanted 
information,  he  got  it.  When  he  wished  to  restrain,  regu- 
late or  crush  a  monopoly,  whether  induced  by  his  own  greed 
or  impelled  by  the  pressure  of  public  opinion,  he  did  it  with- 
out hesitation. 

Some  modern  managers  of  Big  Business  would  deny  the 
right  of  the  state  to  question  its  organization  or  its  meth- 
ods. The  People,  who  have  succeeded  to  all  the  authority 
once  claimed  by  the  ruler,  have  neglected  to  assert  all  their 
rights,  and  some  of  our  Captains  of  Industry  have  grown 
to  believe  that  business  is  a  law  unto  itself.  The  public 
interest  has  been  ignored  and  depredations  against  com- 
petitor and  consumer  alike  have  been  secretly  planned. 
Such  Secrecy  is  the  sin  of  which  we  speak. 

Such  a  spirit  is  characteristic  of  America  and  has  grown 
out  of  the  peculiar  conditions  of  our  national  life.  There 


154  SOCIAL  UNREST 

has  been  so  much  pioneer  work  to  be  done  in  the  United 
States  that  the  important  question  has  been  how  much,  not 
how  well,  or  how  justly,  work  has  been  done.  Lavish 
energy  has  been  devoted  to  subduing  the  wilderness,  or  has 
been  poured  into  trade  and  commerce.  Life  in  a  new  coun- 
try developed  independence  of  spirit,  a  certain  fierce  indi- 
vidualism, which  ignored  the  common  rights  of  all.  Every 
man  felt  that  he  was  the  best,  and  in  many  cases  the  sole, 
judge  of  his  own  conduct. 

This  feeling  that  a  man  may  do  as  he  pleases  with  his 
own  has  persisted  in  business,  though  the  spirit  of  the  times 
is  changing.  Gradually  we  are  realizing  that  no  man  has 
the  right  to  be  the  sole  judge  of  his  conduct,  that  all  the 
people  must  be  considered  before  the  interests  of  a  few. 
We  say  that  the  Kentucky  mountaineer,  who  demands  that 
he  be  permitted  to  make  his  own  rules  of  conduct,  who 
claims  the  right  to  constitute  himself  judge,  jury  and  execu- 
tioner, is  a  survival  from  an  earlier  and  ruder  age.  The 
bank  president  who  boasts  of  his  refusal  to  answer  the  ques- 
tions of  the  House  of  Representatives  is  likewise  a  survival 
of  another  stage  of  civilization  in  the  United  States. 

The  marvelous  improvements  in  means  of  transportation 
and  communication  are  rapidly  making  the  United  States 
(and  to  a  less  degree  the  world)  an  industrial  unit;  some- 
what more  slowly  a  social  unit.  The  country  is  no  longer 
made  up  of  separate  divisions.  A  shock  in  one  section  is 
felt  in  all.  Inefficiency,  industrial  or  social,  is  paid  for  by 


BIG  BUSINESS  AND  THE  CITIZEN         155 

the  whole  country.  We  cannot  afford  the  deadly  sin  of 
waste,  for  our  wants  are  increasing  faster  than  the  means 
of  gratifying  them.  Neither  can  we  afford  to  have  the 
occupants  of  a  field  expend  their  energy  which  should  go 
into  making  their  plants  efficient,  in  the  attempt  to  destroy 
one  another,  and  then  join  forces  to  rob  those  outside. 

The  unrestricted,  relentless  competition  of  the  nineteenth 
century  wasted  not  only  our  natural  resources,  but  also 
energy  and  capital.  Since  it  was  easier  to  waste  than  to 
save,  the  wealth  which  should  have  been  preserved  for  fu- 
ture generations  was  squandered.  This  competition  either 
left  one  organization  triumphant  among  the  slain,  or  else 
has  resulted  in  agreements,  divisions  of  the  field,  combina- 
tions or  consolidations.  The  Citizen  is  told  that  large 
economies  have  been  effected.  To  what  extent  is  the  Con- 
sumer sharing  them?  Is  the  Laborer  getting  his  share? 
Has  Society  gained  ?  Undoubtedly  oil  is  cheaper  than  forty 
years  ago,  but  is  this  because  of  Standard  Oil  or  in  spite 
of  it?  How  can  the  Citizen  know,  for  he  must  know  in 
order  to  judge  wisely,  and  govern  his  conduct  accordingly? 

It  is  too  late  for  Big  Business  to  bluster  about  "  unwar- 
ranted interference  with  private  business."  Such  business 
is  not  private  business.  The  creation  by  the  state  of  limited 
liability  corporations  was  the  most  extensive  interference 
with  private  business  in  history.  The  old  monopoly  was, 
generally  speaking,  built  upon  a  royal  grant  of  powers  and 
privileges.  Modern  business  is  built  upon  the  corporation 


156  SOCIAL  UNREST 

through  which  the  capital  of  many  separate  individuals  is 
subjected  to  unified  control. 

No  invention,  no  discovery  in  the  whole  history  of  the 
world  has  so  vitally  influenced  the  whole  field  of  business. 
This  artificial  person,  combining,  as  it  does,  nearly  all  the 
advantages  of  private  ownership  without  the  disadvantages, 
and  in  addition  many  advantages  given  by  the  state,  has  be- 
come increasingly  important  with  industrial  growth,  and 
has  made  possible  the  large  scale  business  we  have  to-day. 
Few  individuals  have  the  capital  necessary  to  finance  any  one 
of  these  large  undertakings,  and  still  fewer  would  be  willing 
to  invest  such  large  sums  in  a  business  which  might  be 
thrown  into  confusion  or  even  ruin,  by  death.  The  part- 
nership allows  somewhat  larger  establishments,  but  even  here 
there  are  certain  disadvantages  compared  with  the  newer 
forms  of  association.  A  statement  of  some  elementary  facts 
of  contract  law  will  make  the  matter  clear. 

Smith,  Jones  and  Brown  form  a  partnership.  According 
to  the  common  law  none  of  these  may  be  a  married  woman, 
nor  under  twenty-one  years  of  age.  Every  one  of  them  is 
responsible  for  the  debts  of  the  firm,  even  to  the  extent  of 
his  entire  possessions,  no  matter  if  this  debt  is  caused  by  the 
unauthorized  action,  or  even  the  dishonesty  of  one  of  the 
partners,  presumably  acting  for  the  firm.  A  suit  against 
the  partnership  may  tie  up  all  the  enterprises  of  every  mem- 
ber. No  fourth  partner  can  be  introduced  without  the  con- 
sent of  every  one  of  the  three.  No  one  of  them  can  make 


BIG  BUSINESS  AND  THE  CITIZEN        157 

any  private  profit  out  of  any  dealings  with  the  firm. 
Though  Smith  may  desire  to  withdraw  or  to  sell  his  interest, 
he  may  still  be  held  responsible  for  the  debts  of  the  firm 
made  before  he  leaves  it.  If  Brown  dies,  or  Jones  becomes 
bankrupt,  the  partnership  affairs  must  be  wound  up. 

Compare  these  restrictions  with  the  freedom  allowed  when 
Smith,  Jones  and  Brown  form  a  corporation.  Its  life  is  per- 
petual or  at  least  renewable.  Every  member  then  is  liable 
only  for  the  property  he  has  invested.  (The  double  liabil- 
ity of  the  stockholders  of  National  Banks  is  a  special  case.) 
Jones  may  withdraw  by  selling  or  giving  away  his  stock 
at  any  time,  without  the  consent  or  even  the  knowledge  of 
his  fellows;  he  may  own  the  whole  or  a  part  of  a  competing 
business,  may  sell  goods  to  the  corporation,  or  may  buy  from 
it.  The  insolvency  or  death  of  a  shareholder  has  no  effect 
upon  the  corporation,  nor  can  an  officer  without  authoriza* 
tion  of  the  directors  embark  in  a  course  which  will  involve 
all  in  ruin,  a  course  which  any  partner  may  take.  Has  not 
the  state  here  given  great  advantage  to  the  corporation  ? 

So  then  the  corporation  is  the  child  of  the  state.  From 
the  state  come  its  great  advantages  which  have  made  pos- 
sible the  domination  of  certain  fields.  The  state  gave  these 
powers  not  for  the  benefit  of  the  shareholders  but  for  the  pub- 
lic interest,  to  enable  the  corporation  to  do  the  work  which 
an  individual  or  a  partnership  could  not  do,  or,  at  least,  was 
unwilling  to  do.  Then  when  the  state  finds  that  these  pow- 
ers are  used,  not  for  the  interest  of  its  citizens  but  to  oppress 


158  SOCIAL  UNREST 

them,    who    can    say    that    the    state    may    not    interfere? 

This  is  not  only  sound  ethics,  but  it  is  good  law.  In  the 
beginning  of  the  history  of  the  corporation,  the  judges  were 
disposed  to  treat  it  precisely  as  an  individual.  We  are  told 
that  in  the  early  days  of  illuminating  gas,  it  was  held  that 
the  company  was  free  to  sell  or  to  refuse  its  product  to  any 
individual.  The  absurdity  of  such  a  decision  was  apparent, 
and  the  courts  soon  declared  that  all  applying  must  be 
supplied  without  discrimination.  Now  it  is  further  settled 
that  the  state  may  prescribe  a  minimum  quality  and  a  maxi- 
mum price,  provided  that  this  price  will  afford  a  reasonable 
return  to  capital. 

As  the  public  consciousness  has  become  able  to  think  in 
terms  of  corporations  as  well  as  in  terms  of  individuals,  the 
law  has  advanced  still  further.  It  is  useless  to  deny  that 
in  their  interpretation  and  application  of  the  principles  of 
the  common  law,  judges  are  profoundly  influenced  by  the 
social  consciousness.  In  the  long  run  the  law  is  what  the 
people  demand  that  it  shall  be,  and  this  is  true  regardless 
of  any  of  the  modern  machinery  which  promises  to  turn  in- 
stantaneously a  passing  whim  into  a  statute. 

A  landmark  in  modern  corporation  law  is  the  great  case 
of  Munn  v.  Illinois,  popularly  known  as  the  "  Elevator 
Case,"  decided  by  the  Supreme  Court  of  the  United  States 
in  1877.  The  question  in  dispute  was  the  right  of  the  state 
to  regulate  the  rules  and  charges  of  grain  elevators.  Chief 
Justice  Waite  delivered  the  opinion  of  seven  members  of  the 


BIG  BUSINESS  AND  THE  CITIZEN        159 

court  and  showed  that  from  time  immemorial  the  right  of 
the  state  to  regulate  various  activities  of  its  citizens  had  been 
assumed,  and  went  on  to  say  that,  "  when  private  property 
is  '  affected  with  a  public  interest  it  ceases  to  be  juris  privati 
only.'  Property  does  become  clothed  with  a  public  interest 
when  used  in  a  manner  to  make  it  of  public  consequence, 
and  affect  the  community  at  large." 

Upon  this  case  as  a  pivot  the  "  Granger  Cases  "  which 
prepared  the  way  for  regulation  of  public  service  corpora- 
tions turned.4  Regulation  of  corporations  serving  the  pub- 
lic was  declared  to  be  lawful  in  spite  of  the  emphatic  pro- 
test of  Justice  Field  (approved  by  Justice  Strong),  who 
said :  "  There  is  no  business  or  enterprise  involving  ex- 
penditure to  any  extent  which  is  not  of  public  consequence 
and  which  does  not  affect  the  community  at  large."  In  an- 
other place  the  same  justice  declared  that  the  opinion  of  the 
seven  justices  was  a  "  bold  assertion  of  absolute  power  by 
the  state  to  control  at  its  discretion  the  property  and  busi- 
ness of  the  citizen  and  fix  the  compensation  he  shall  re- 
ceive." Nevertheless  the  decision  stands. 

Note  the  progress  of  the  law  as  interpreted  by  the  courts. 
First  the  corporation  is  treated  precisely  as  an  ind-ividual, 
and,  with  the  conception  of  the  power  of  the  state  which 

4  This  name  was  applied  to  a  group  of  cases  coming  from  the 
Middle  West  decided  by  the  Supreme  Court  1876-77.  Their  pur- 
pose was  to  test  the  constitutionality  of  the  restrictive  legislation  on 
common  carriers  placed  in  the  statute  books  through  the  influence 
of  the  National  Grange  of  Patrons  of  Husbandry,  so  powerful  in 
that  section  a  generation  ago. 


160  SOCIAL  UNREST 

prevailed  at  the  time,  its  right  to  arbitrary  action  is  affirmed. 
Then  the  so-called  public  service  corporation  is  separated 
from  the  corporation  in  general,  discrimination  on  its  part 
is  forbidden,  and  next  the  right  to  regulate  the  prices  of  its 
product,  whether  goods  or  services,  is  asserted.  Finally  the 
idea  of  regulation  is  logically  extended  to  all  corporation 
of  "  public  consequences,"  that  is,  having  an  element  of 
monopoly. 

What  in  fact  is  the  difference  between  gas  and  kerosene? 
The  state  regulates  the  terms  on  which  gas  may  be  sold, 
because  it  is  a  public  necessity  supplied  by  a  monopoly. 
Kerosene  is  likewise  a  necessity  and  in  some  sections  of  the 
country  is  supplied  only  by  a  monopoly.  Again  gas  is  used 
for  heating  and  cooking.  So  is  anthracite  coal,  and  if  it  is 
subjected  to  unified  control,  why  are  not  the  cases  similar? 

The  Citizen  is  not  yet  ready  to  go  to  such  lengths.  Per- 
haps he  never  will  be.  In  the  Middle  Ages  such  regulation 
was  not  particularly  difficult.  To-day  such  action  would  be 
attended  with  infinitely  more  complications,  though  the  in- 
creasing concentration  of  business  would  make  such  regula- 
tion easier  now  than  forty  years  ago.  Some  students  see 
no  other  way  to  curb  the  power  of  those  great  industrial 
combinations,  which  have  gained  substantial  control  of  their 
fields,  but  the  average  Citizen  is  as  yet  too  individualistic. 
Only  as  a  last  resort  will  he  agree  to  such  action,  but  his 
right  cannot  be  logically  questioned. 

Big  business  is  becoming  the  distinctive  feature  of  Amer- 


BIG  BUSINESS  AND  THE  CITIZEN        161 

ican  industrial  life.  The  census  shows  that  just  over  one- 
fourth  of  the  manufacturing  establishments  of  the  United 
States  are  under  corporate  control,  but  they  do  79  per  cent, 
of  the  business.  Only  a  little  more  than  one  per  cent,  of 
the  establishments  produce  more  than  a  million  dollars  worth 
of  goods  in  a  year,  but  these  establishments  do  nearly  44 
per  cent,  of  the  business.  These  3,061  organizations  (there 
were  only  1,900  of  them  five  years  ago)  are  divided  among 
all  branches  of  industry.  Not  all  of  them  are  trusts.  The 
highest  estimate  of  such  combinations  is  about  800,  and  this 
is  much  padded,  but  the  figures  shown  do  indicate  that  the 
large  establishment  is  growing  more  important. 

Have  these  leviathans  succeeded  on  account  of  superior 
ability  or  exceptional  skill  in  management,  or  because  of 
advantageous  location,  and  special  advantages  in  transpor- 
tation, natural  or  artificial?  Has  the  success  been  due  to 
the  possession  of  basic  patents,  or  to  any  one  or  more  of 
these  advantages  combined  with  sheer  brutality  toward  com- 
petitors, and  contemptuous  disregard  of  the  producer  of  raw 
material  and  of  the  consumer  alike  ? 

No  one  knows.  We  do  know  the  secret  of  a  few.  The 
Standard  Oil  colossus  owed  much  to  the  freight  rebates,  not 
only  on  its  own  product,  but  also  on  that  of  its  competitors, 
obligingly  collected  and  paid  over  by  the  railroads.  Prac- 
tically all  the  older  concerns  have  profited  by  rebates,  for 
that  matter.  The  ownership  of  popular  brands,  together 
with  imagination  and  ruthless  singleness  of  purpose,  made 


162  SOCIAL  UNREST 

the  American  Tobacco  Company  the  dictator  of  the  nico- 
tine world.  The  ownership  of  its  raw  materials,  and,  in  a 
large  measure,  of  its  means  of  transportation  has  enabled 
the  Steel  Corporation  to  hold  its  own  and  pay  dividends 
upon  capitalized  visions. 

We  can  surmise  the  reasons  for  the  success  of  others, 
sometimes  creditable,  sometimes  not.  We  are  told  that  some 
have  grown  great  because  they  best  serve  the  public,  because 
they  give  as  well  as  take.  We  have  heard  that  others  have 
set  out  to  win  a  monopoly  without  scruple  as  to  methods, 
but  the  Citizen  does  not  know  the  truth. 

Regardless  of  past  history,  what  is  the  present  attitude  of 
•these  great  aggregations  of  capital  toward  the  public  which 
has  allowed  them  to  grow  strong  enough  to  control  prices, 
—  for  after  all  this  is  perhaps  as  good  a  definition  of  a  trust 
as  we  have  —  an  organization  strong  enough  to  affect  prices 
at  will.  Are  they  pursuing  the  paths  of  fairness  and  jus- 
tice, or  do  they  seek  to  accomplish  by  indirection  what  they 
no  longer  dare  to  do  openly?  Are  they  obeying  the  law  of 
the  land  ?  The  Citizen  does  not  know,  and  he  has  no  means 
of  knowing.  Some  of  the  managers  say  that  they  do  not 
know  either,  and  that  they  wish  to  be  told. 

The  Citizen  demands  the  answers  to  all  these  questions 
and  more  besides.  When  a  new  combination  is  organized 
he  wishes  to  know  how  much  of  the  capitalization  represents 
physical  value,  how  much  is  allowed  for  good-will  and  trade- 
marks, how  much  is  water  only,  and  how  heavy  are  the  pro- 


BIG  BUSINESS  AND  THE  CITIZEN        163 

moters'  and  underwriters'  fees.  He  is  also  interested  in  the 
relationship  of  different  corporations.  Do  they  really  work 
together  while  pretending  to  be  opposed?  The  Citizen  is 
always  a  consumer  and  he  is  sometimes  an  Investor  also. 

He  knows  that  in  this  day  he  cannot  be  sure  of  a  fair 
price  unless  he  knows  the  costs.  Therefore  he  wishes  to 
know  the  cost  of  the  raw  material,  and  the  transportation 
charges  on  it,  how  much  is  paid  for  wages,  how  much  for 
interest  and  depreciation,  and  how  much  for  expenses  of 
management. 

Then,  too,  he  is  inquisitive  about  the  cost  of  selling  the 
product.  How  much  difference  is  there  between  the  price 
at  the  shop  and  on  the  doorstep  of  the  consumer?  Was  the 
man  who  dropped  into  the  plate  a  cent  for  the  heathen,  but 
wrapped  it  in  a  dollar  bill  to  pay  the  expense  of  getting  it 
to  them,  thinking  of  modern  middlemen?  Further,  are 
prices  uniform  in  all  sections  regardless  of  a  real  or  poten- 
tial competitor? 

This  is  one  of  the  points  on  which  the  Citizen  is  particu- 
larly inquisitive.  He  has  been  told  that  the  great  organiza- 
tion which  sells  in  every  part  of  the  country  sometimes  re- 
duces prices  unduly  in  the  corner  where  a  small  competitor 
is  located,  while  maintaining  them  in  other  sections. 
Usually  the  competitor  must  yield,  for  it  must  meet  these 
prices, —  often  below  cost,  which  the  larger  concern  can 
offer  because  it  is  sustained  by  profits  gained  elsewhere. 
This  competitor  may  be  able  to  produce  goods  as  cheaply 


164  SOCIAL  UNREST 

as  the  trust, —  for  in  some  lines,  size  beyond  a  certain  point 
does  not  necessarily  mean  increased  efficiency  —  but  it  can- 
not match  the  resources  of  the  larger  organization.  If  uni- 
form prices  were  the  rule,  the  competitor  might  be  able  to 
lose  one  dollar  as  long  as  its  great  rival  could  afford  to  lose 
ten. 

Then,  too,  there  are  stories  of  the  attitude  of  some  great 
combinations  toward  labor,  about  which  the  Citizen  is  curi- 
ous. He  has  heard  that  an  organization  operating  perhaps 
a  dozen  plants  sometimes  closes  one  arbitrarily  until  the 
workers  are  brought  to  terms,  regardless  of  the  justice  of 
their  contention.  Then  this  plant  is  reopened  and  the  same 
process  is  repeated  in  another. 

Combination  is  taking  in  new  fields.  Openly  the  cotton 
farmers  have  been  urged  to  organize,  to  reduce  the  supply 
and  hold  even  that  reduced  supply  from  the  market  until 
a  monopoly  price  is  offered,  and  some  slight  progress  toward 
such  an  end  has  been  made.  In  some  sections  the  growers 
of  fruits  and  berries  have  made  agreements,  or  formed  com- 
binations, with  the  ostensible  purpose  of  securing  better  pack- 
ing and  more  intelligent  marketing.  There  are  stories  of 
concerted  action  on  the  part  of  the  producers  of  milk  and 
butter. 

Deep  down  in  his  mind  the  most  individualistic  citizen  is 
beginning  to  doubt  both  the  efficacy  of  competition  in  regu- 
lating prices,  and  even  its  desirability  in  many  lines  of  in- 
dustry. He  sometimes  asks  himself  whether  any  law  could 


BIG  BUSINESS  AND  THE  CITIZEN        165 

make  him  fight  against  his  will,  and  if  he  would  not  fight 
himself,  how  can  others  be  made  to  struggle?  But  the  Citi- 
zen has  a  very  lively  curiosity  concerning  all  these  agree- 
ments to  restrain  trade.  He  wishes  to  know  their  terms, 
and  their  effects. 

These  are  some  of  the  points  upon  which  the  great  body 
of  American  citizens  desire  information,  and  without  which 
there  is  little  hope  of  unwinding  the  tangled  skein  of  our 
industrial  and  economic  life.  In  a  word  they  wish  to  know 
the  costs  of  both  goods  and  services  which  they  must  buy, 
and  next,  how  these  costs  are  reached. 

The  Citizen  will  know.  This  does  not  mean  either  arbi- 
trary interferences  or  confiscation,  but  social  justice  must  be 
done.  //  this  end  is  to  be  reached  by  regulated  competition, 
the  Citizen  must  know;  if  by  regulated  monopoly,  the  state 
will  survive.  But  it  is  to  be  a  deliberate  choice  and  not  a 
supine  acceptance  of  unregulated  monopoly. 

A  Commission  on  Interstate  Trade  is  the  answer. 

Just  what  form  this  Commission  shall  take  and  what  pow- 
ers shall  be  granted  it  are  questions  upon  which  there  is 
difference  of  opinion.  From  the  point  of  view  of  the  fram- 
ers  of  this  series,  the  fundamental  necessity  is  that  it  shall 
be  an  effective  agency  for  Investigation  and  Publicity.  Be- 
yond this  they  are,  for  the  present,  less  concerned.  Others 
have  urged  that  powers  of  regulation  be  added,  and  many 
separate  schemes  have  been  suggested. 

The  different  plans,  though  varying  in  details  may  be 


166  SOCIAL  UNREST 

reduced  to  three,  which  may  be  characterized  as  (i)  the  In- 
vestigation and  Publicity  plan;  (2)  the  License  plan;  and 
(3)  the  Regulation  plan.  These  differ  chiefly  in  the  amount 
of  Federal  control  demanded. 

The  plan  of  Senator  Francis  G.  Newlands,  of  Nevada,  as 
set  forth  in  his  bill  introduced  into  the  United  States  Senate 
February  26,  1912,  calls  for  a  commission  of  three  mem- 
bers, to  be  appointed  by  the  President  for  a  term  of  nine 
years,  with  terms  so  arranged  that  there  shall  be  a  vacancy 
every  three  years.  The  Bureau  of  Corporations  is  to  be 
absorbed  with  its  staff  of  investigators  and  accountants,  and 
the  present  Commissioner  of  Corporations  is  to  be  a  member 
of  the  Commission. 

The  powers  given  may  be  stated  as  those  of  Visitation, 
Examination,  Investigation  and  Publication.  All  corpora- 
tions engaged  in  interstate  commerce  having  gross  receipts 
of  $5,000,000  (except  those  already  subject  to  the  Interstate 
Commerce  Commission  and  the  Comptroller  of  the  Cur- 
rency, i.  e.,  public  utilities  and  banking)  are  directly  in 
charge  of  the  new  Commission.  From  these  a  report  in  a 
prescribed  form  giving  a  statement  of  organization,  financial 
condition  and  operations  will  be  required  at  once  under  oath. 
Thereafter  such  reports  are  to  be  regularly  made.  A  report 
of  similar  nature  is  to  be  made  by  corporations  beginning 
business. 

The  Commission,  or  its  agents,  will  have  the  right  to 
examine  all  books,  records,  and  minutes,  and  the  power  to 


BIG  BUSINESS  AND  THE  CITIZEN        167 

subpoena  witnesses,  examine  them  under  oath,  and  to  com- 
pel the  production  of  books  and  papers  is  also  given.  These 
powers  are  to  be  enforced  by  the  mandamus  of  the  United 
States  District  Court.  The  Commission  shall  make  public 
so  much  of  the  information  gained  as  shall  seem  proper, 
striving  always  to  distinguish  between  what  is  purely  private 
and  what  is  of  public  interest. 

The  bill  further  provides  that  the  Commission  may  re- 
quire reports  of  the  condition  of  any  particular  corporation 
regardless  of  size,  and  may  publish  the  information  gained. 
Likewise  it  may  investigate,  on  its  own  initiative,  or  upon 
the  complaint  of  any  citizen  or  of  the  Attorney  General,  any 
corporation  to  determine  whether  it  has  been  guilty  of  vio- 
lating the  Sherman  Act.  If  improper  practices  are  found, 
it  may  inform  the  officers  and  prescribe  readjustments.  If 
the  practice  or  condition  is  not  corrected  within  sixty  days, 
a  copy  of  the  rinding  and  the  evidence  is  to  be  sent  the  De- 
partment of  Justice. 

Further  it  is  provided  that  the  Commission  shall  be 
charged  with  carrying  out  the  decisions  of  the  courts  on 
the  Sherman  Act.  It  is  certain  that  a  commission  with 
broader  knowledge  of  economic  questions  than  that  possessed 
by  the  judges  of  the  United  States  Courts  in  New  York, 
for  example,  would  have  worked  out  a  plan  for  the  reorgan- 
ization of  the  American  Tobacco  Company,  which  would 
have  received,  and  deserved,  less  criticism  than  the  solution 
finally  announced. 


i68  SOCIAL  UNREST 

The  assumptions  behind  this  bill  are  of  course  that  the 
Sherman  Act  can  be  made  effective,  and  that  we  are  too 
ignorant  of  the  facts  to  attempt  more  definite  legislation  at 
present.  It  leaves  the  question  whether  it  is  possible  to 
retain  competition  in  all  lines  to  the  future.  It  lays  out  a 
program,  comprehensive  so  far  as  it  goes,  and  undoubtedly 
effective  to  a  degree,  and  leaves  further  action  to  the  time, 
when  the  results  of  the  Commission's  activities  will  furnish 
more  exact  knowledge  than  is  now  available. 

On  the  other  hand  the  effect  of  this  bill  on  the  corpora- 
tion, should  it  become  a  law,  might  be  beneficial  in  many 
cases.  The  preparation  of  the  figures  required  by  the  Com- 
mission would  force  the  officers  and  directors  to  scrutinize 
with  care  their  system  of  accounts.  There  is  a  strong  sus- 
picion that  many  of  the  plants  of  certain  great  combina- 
tions are  neither  well  equipped  nor  efficient.  It  is  also  be- 
lieved that  several  of  the  combinations  cannot  manufacture 
so  cheaply  as  some  of  their  independent  rivals.  The  re- 
ports to  the  Commission  would  show  the  truth. 

The  different  plans  suggested  for  a  Federal  license  add 
to  the  activities  of  the  Commission  (more  or  less  the  same 
as  described  above),  the  duty  of  licensing  corporations  en- 
gaged in  interstate  commerce.  These  plans  differ  chiefly  on 
the  question  of  making  the  application  for  license  permissive 
or  mandatory. 

In  one  case  the  license  is  a  reward  of  merit  for  the  "  good 


BIG  BUSINESS  AND  THE  CITIZEN        169 

trust."  Those  corporations  above  a  certain  size  which  can 
satisfy  the  Commission  that  they  are  organized  in  accord- 
ance with  the  law,  that  they  do  not  prey  upon  producers  of 
raw  material,  competitors  or  the  public,  are  to  have  the 
privilege  of  adding  "  United  States  Registered  "  or  similar 
words  to  their  title.  Upon  proof  of  improper  conduct  the 
Commission  is  authorized  to  revoke  the  license. 

The  advocates  of  the  plan  claim  that  the  possession  of  a 
Federal  license  would  soon  be  highly  prized  and  would  in 
time  be  regarded  as  a  necessity,  since  the  public,  feeling  that 
the  possession  of  a  license  gave  some  assurance  of  fair  deal- 
ing, would  give  the  preference  to  the  registered  corporation; 
that  the  obligations  of  this  class  would  bring  a  higher  price 
than  those  of  the  unregistered  for  the  same  reason  that  the 
bonds  issued  by  various  public  service  corporations  which  are 
approved  by  the  Public  Service  Commissions  of  some  of  the 
states  have  a  wider  market  and  a  readier  sale. 

The  advocates  of  requiring  a  Federal  license  would  bar 
from  interstate  commerce  all  corporations  to  which  the  Com- 
mission refused  a  license.  Such  a  plan  is  not,  in  fact,  essen- 
tially different  from  Federal  incorporation,  or  from  regula- 
tion, to  which  we  now  come. 

The  wisdom  of  preserving  competition  is  not  a  debatable 
question  to  Senator  Cummins.  His  mind  is  settled  upon 
that  point,  and  his  plan  is  based  upon  the  intention  of  pre- 
venting any  corporation  from  obtaining  control  of  any  field. 


i7o  SOCIAL  UNREST 

His  bill,  introduced  the  same  day  as  Senator  Newlands', 
provides  for  a  commission  organized  much  as  that  advo- 
cated by  the  latter,  but  with  greater  powers. 

While  believing  firmly  in  the  Sherman  Act  he  feels  that 
it  is  not,  as  it  stands,  sufficiently  definite,  and  that  to  wait 
until  a  consistent  body  of  law  is  developed  by  the  decisions 
of  the  Supreme  Court  would  be  fatal.  Therefore  the 
greater  part  of  his  bill  is  devoted  to  what  may  be  described 
as  an  amplification  of  the  Sherman  Act. 

The  Commission  is  charged  with  the  duty  of  preventing 
any  corporation  from  employing  sufficient  capital  to  destroy 
effective  competition.  Every  corporation  engaged  in  inter- 
state commerce  with  capital  of  $5,000,000  or  over  is  made 
subject  to  the  control  of  the  Commission.  No  man  may  be 
director  in  two  corporations  in  the  same  line,  nor  are  dummy 
directors  permitted.  The  "  holding  company  "  is  declared 
illegal  and,  in  fact,  no  corporation  may  own  stock  in  another 
corporation.  No  officer  or  director  of  a  company  with  a 
capital  stock  of  $10,000,000  or  more  may  be  an  officer  or 
director  of  a  bank. 

Not  only  must  there  be  no  holding  companies,  but  also 
the  ownership  of  common  carriers  or  any  interest  in  the 
same  is  forbidden.  Discrimination  in  prices  is  forbidden 
except  for  carload  lots,  or  where  charges  are  paid  by  the 
manufacturer,  these  may  be  added  to  the  fixed  price. 

The  chief  question  of  the  citizen  about  any  of  these  plans 
is  whether  it  will  work.  With  the  aim  of  Senator  Cum- 


BIG  BUSINESS  AND  THE  CITIZEN        171 

mins'  plan  he  is  in  sympathy,  but  he  realizes  that  men  are 
only  human.  This  bill  imposes  upon  a  new  commission 
more  difficult  tasks  than  have  been  given  to  the  Interstate 
Commerce  Commission  after  twenty-five  years  of  experience, 
and  calls  for  an  exercise  of  discretion  and  judgment  which 
would  tax  the  ablest  jurists  and  economists. 

The  License  plan  is  chiefly  advocated  by  those  who  are 
directly  interested  in  "  big  business  "  and  while  the  Citizen 
is  not  unduly  suspicious,  he  is  afraid  that  in  the  present  state 
of  our  knowledge,  the  Federal  seal  of  approval  will  come 
to  mean  little  more  than  "  U.  S.  Inspected  and  Passed  "  in 
the  packing  industry,  and  largely  for  the  same  reason  — 
too  much  work  for  the  inspectors.  Discovering  facts  and 
approving  practices  are  two  entirely  distinct  things. 

At  the  present  time  what  the  Citizen  demands  most  in- 
sistently is  knowledge.  All  that  the  muckrakers  have  said 
cannot  be  true,  and  yet  he  knows  that  all  is  not  well.  He 
believes  that  a  Commission  of  Investigation  and  Publication 
will  work,  because  he  has  before  him  the  success  of  a  com- 
mission which  has  proved  its  ability  to  use  broader  powers 
than  he  is  disposed  to  grant  to  the  new  body. 

Forty  years  ago  the  railroad  question  was  the  vital  eco- 
nomic problem.  Rebates  to  favored  shippers  were  so  com- 
mon that  a  prominent  railroad  man  said,  "  Only  the  unwary 
paid  tariff  rates."  The  shipper  without  influence  often  paid 
a  freight  rate,  one-fourth  or  even  one-half  greater  than  that 
paid  by  his  competitor.  One  town  was  favored  at  the  ex- 


172  SOCIAL  UNREST 

pense  of  another,  the  railroad  was  in  politics  all  the  time, 
and  "  the  public  be  damned "  was  the  ruling  policy. 
Twenty-five  years  ago  the  Interstate  Commerce  Commission 
was  formed  and,  after  a  period  of  weakness,  its  powers 
have  been  increased  until  it  is  now  a  singularly  strong  and 
effective  body.  No  one  in  his  senses  would  claim  for  a 
moment  that  it  has  been  entirely  successful,  but,  on  the  other 
hand,  no  one  except  an  antediluvian  would  deny  that  the 
Publicity  it  has  caused  has  been  beneficial  to  the  railroad, 
the  shipper  and  the  public  alike. 

The  Commission  has  not  entirely  stopped  rebating,  but 
rebating  has  become  the  exception  and  not  the  rule.  Freight 
discriminations  exist,  but  they  are  growing  fewer.  The 
Citizen  who  buys  a  ticket  may  help  to  pay  for  a  certain 
amount  of  free  transportation,  but  fewer  politicians  or  "  in- 
fluential citizens  "  ride  on  passes.  The  Commission  has  not 
taken  the  railroads  entirely  out  of  politics,  but  their  political 
power  has  been  reduced,  partly  because  of  the  work  of  the 
Commission,  partly  for  other  reasons. 

The  Commission  has  decided  many  cases  (though  often 
overruled  by  the  courts),  but  the  injustices  it  has  prevented 
are  many  times  as  numerous  as  those  it  has  corrected.  A 
very  large  majority  of  the  complaints  have  been  redressed 
without  formal  action,  and  the  very  existence  of  a  body  to 
which  appeal  was  possible  has  made  the  necessity  for  appeal 
less  frequent.  Publicity  has  been  effective,  for  no  railroad 


BIG  BUSINESS  AND  THE  CITIZEN        173 

manager  any  more  than  an  individual  wishes  the  reputation 
of  being  an  extortioner. 

There  are,  according  to  the  estimate  of  the  Commissioner 
of  Corporation,  somewhere  between  325  and  500  corpora- 
tions doing  a  business  of  more  than  $5,000,000  a  year.  The 
task  of  supervising  these  would  be  less  difficult  than  the  task 
the  Interstate  Commerce  Commission  has  performed.  It 
is  amusing  and  interesting  to  read  now  the  prophecies  of 
failure  given  elsewhere  in  this  article,  which  were  made 
only  twenty-five  years  ago. 

Publish  it,  is  the  answer.  The  ease  and  rapidity  of  com- 
munication and  transportation  have  made  possible  the  phe- 
nomenal growth  of  capital  and  also  its  concentration.  It  is 
proposed  to  use  these  same  modern  agencies  to  restrain  the 
modern  Midas,  when  he  forgets  that  he  has  grown  wealthy 
and  powerful  only  through  the  permission  of  Society. 

Light  is  one  of  the  strongest  preventives  of  crime.  In- 
creasing the  illumination  will  do  more  to  reform  a  street 
than  doubling  the  force  of  policemen.  A  light  hung  in 
front  of  a  safe  is  better  protection  than  a  watchman,  for  all 
the  passers-by  are  transformed  into  watchmen.  So  it  is  the 
obscurity  with  which  the  transactions  of  our  great  corpora- 
tions are  covered  that  allows  those  acts  of  which  the  Citizen 
justly  complains. 

Aroused  and  informed  Public  Opinion  is  a  force  which 
is  almost  irresistible.  As  a  witness  before  the  Senate  Com- 


174  SOCIAL  UNREST 

mittee  aptly  said,  "  No  one  except  a  fool  disregards  public 
opinion."  It  forced  Elizabeth  to  revoke  the  charters  of 
many  monopolies  she  had  granted,  it  brought  on  the  Civil 
War,  it  forced  the  United  States  into  the  war  with  Spain, 
it  forced  the  settlement  of  the  recent  textile  strike  in  New 
England. 

There  are  hundreds,  even  thousands,  of  such  cases  in  his- 
tory. Where  the  great  mass  of  the  people  has  had  no  di- 
rect voice  in  the  government,  wise  rulers  have  always  made 
concessions  to  public  feeling.  The  influence  of  this  force 
is  shown  in  our  everyday  life.  Many  men  lead  decent  lives 
from  no  higher  motives  than  the  desire  for  the  approbation 
of  their  fellows.  Other  thousands  abstain  from  open  evil 
from  fear  of  public  censure  alone.  This  has  always  been 
true  of  individuals  and  now  the  corporation  has  fallen  into 
line.  It  also  seeks  to  gain  approbation  and  to  avoid  blame, 
and  is  showing  a  new  deference  to  the  opinion  of  its  patrons. 

Instances  could  be  multiplied  from  the  daily  papers.  A 
few  years  ago  the  Long  Island  Railroad  wished  to  raise  its 
rates.  It  bought  columns  of  the  newspapers  to  explain  the 
financial  reasons  which  made  such  action  necessary.  The 
same  course  was  taken  by  the  management  of  the  Hudson 
River  tubes,  when  the  fare  from  New  Jersey  to  New  York 
was  increased  a  few  months  ago.  Twenty  years  ago  sim- 
ilar corporations  would  never  have  dreamed  of  paying  for 
advertising  space  to  placate  the  public.  Now  nearly  every 
great  corporation  has  a  publicity  agent  to  spread  all  that  is 


BIG  BUSINESS  AND  THE  CITIZEN        175 

favorable,  and  to  offer  a  plausible  explanation  of  occurrences 
which  might  cause  unfavorable  comment. 

So  the  simple  publication  of  acts  of  injustice  and  unfair- 
ness would  in  many  cases  work  their  cure,  just  as  the  in- 
vestigations of  the  Bureau  of  Corporations  have  changed  the 
rules  of  the  Cotton  Exchanges.  Herbert  Knox  Smith,  the 
Commissioner  of  Corporations,  says: 

The  report  of  the  bureau  in  the  transportation  of  petro- 
leum published  in  May,  1906,  effected  a  sweeping  decrease 
in  the  granting  of  railway  rebates  throughout  the  country. 
Practically  every  railroad  involved  .  .  .  canceled  the  objec- 
tionable rates  within  six  months  after  the  issuance  of  the 
report. 

Again  there  is  another  advantage.  Fifty  years  ago  the 
hero  of  the  Sunday-school  book  became  a  successful  mer- 
chant or  manufacturer.  Now  suspicion  is  attached  to  wealth 
and  all  the  rich  are  classed  as  predatory.  Too  often  the 
question  is,  "Where  did  he  get  it?"  or  "What  does  he 
want  ?  "  All  men  of  wealth  have  suffered  for  the  deeds 
of  a  few.  Those  coming  through  the  fires  of  investigation 
unscathed  would  find  the  attitude  of  the  public  different, 
and  the  Citizen  would  lose  his  suspicious  attitude  which  is 
harming  him  no  less  than  its  object. 

No  one  class  will  profit  more  by  Publicity  than  the  small 
stockholders  in  the  large  corporation.  Too  often  the  dom- 
inant interests  have  treated  them  as  of  no  account,  have 
concealed  earnings,  withheld  dividends,  or  declared  them 


176  SOCIAL  UNREST 

when  not  earned,  solely  that  they  might  juggle  with  the 
stock  market.  We  saw  the  price  of  Standard  Oil  rising 
after  dissolution  had  been  decreed,  because  those  on  the  in- 
side withheld  information  until  their  hands  were  forced. 
The  stockholders  knew  nothing  of  the  affairs  of  the  cor- 
poration except  that  it  paid  good  dividends.  It  could  have 
paid  a  higher  rate.  Again  Publicity  would  bring  to  light 
the  concealed  corporations,  largely  composed  of  insiders, 
which  often  take  the  lion's  share  of  the  profits  which  should 
belong  to  the  stockholders  of  the  larger  organization.  In- 
siders could  no  longer  form  "  construction  companies  "  to 
which  contracts  would  be  let  at  exorbitant  prices.  The 
sling  of  David  was  an  object  of  derision,  but  it  prevailed 
against  Goliath. 

As  we  have  said  above,  the  Citizen  has  begun  to  doubt 
the  possibility  of  maintaining  competition  in  all  lines  of 
business.  He  is  forced  to  believe  that  the  badly  located 
plant  with  insufficient  capital  cannot  produce  cheaply,  and 
increasing  cheapness  of  production  is  necessary  for  economic 
progress,  for  waste  is  a  sin.  He  is  told  that  a  drug  store 
with  too  little  capital,  and  lacking  efficient  management  can- 
not properly  serve  the  public.  Yet  the  Citizen  must  be 
certain  that  these  are  really  inefficient,  for  he  is  sorry  to  see 
his  neighbors  fail. 

But  if  under  a  regime  of  Publicity,  the  larger  and  better 
equipped  plant,  or  the  intelligently  managed  chain-store, 
can  fairly  and  honestly  offer  cheaper  goods,  or  afford  better 


BIG  BUSINESS  AND  THE  CITIZEN        177 

service,  the  Citizen  is  not  a  Mrs.  Partington,  who  will  try 
to  sweep  back  the  waves  of  the  sea.  The  relatively  ineffi- 
cient must  go,  in  the  long  run,  just  as  the  hand-loom  weaver 
disappeared  before  the  factory,  and,  in  our  own  day,  we  are 
seeing  the  hand  compositor  give  place  to  the  linotype  oper- 
ator. 

The  Citizen  knows  that  savage,  intolerant  competition 
destroys  the  weaker  and  leads  toward  monopoly.  He  hopes 
to  see  the  present  uncertainty  replaced  by  an  era  of  "  toler- 
ant competition,"  when  efficient  plants  will  strive  to  secure 
the  business  by  producing  better  and  cheaper  goods,  or  by 
offering  better  service.  In  other  words,  he  hopes  to  pre- 
serve all  the  economies  of  large-scale  production  without  the 
dangers  of  monopoly. 

Finally,  under  the  reign  of  Publicity  the  real  culprits 
will  stand  revealed.  Those  who  deliberately  and  defiantly 
deny  their  obligation  to  Society  and  avow  their  motto  to  be 
"  Let  him  get  who  hath  the  power  "  will  no  longer  be  pro- 
tected. For  them  is  the  scourge  of  the  law. 

Let  us  now  trace  again  the  path  by  which  we  have  come. 
Monopoly  is  as  old  as  history  and  practices  of  the  modern 
monopolist  were  common  to  his  predecessor.  The  old  mo- 
nopolist, however,  seldom  denied  his  responsibility  to  his  cre- 
ator. The  modern  monopolist  has  grown  great,  largely 
because  of  the  privileges  granted  by  the  state.  The  state, 
then,  can  regulate  the  business  as  soon  as  it  becomes  of 


178  SOCIAL  UNREST 

"  public  consequence."  But  in  order  to  frame  proper  legis- 
lation, we  must  have  all  the  facts  of  organization  and  con- 
duct. The  agency  which  will  get  these  facts  is  a  permanent 
commission  organized  for  the  purpose.  When  the  monop- 
olists find  that  their  actions  will  be  brought  to  the  light, 
many  improper  practices  will  disappear.  If  they  do  not, 
we  shall  know  how  to  deal  with  them. 

A  CHAPTER  OF  ANCIENT  HISTORY 

These  extracts  below  on  the  question  of  establishing  the 
Interstate  Commerce  Commission  are  only  a  little  more  than 
twenty-five  years  old,  but  they  sound  as  if  they  belonged  to 
another  age.  They  show  better  than  pages  of  explanation 
could  do  some  of  the  common  ideas  a  quarter  of  a  century 
ago,—  the  arrogant  individualism,  the  absolute  lack  of  any 
conception  of  the  rights  of  the  public.  On  the  other  hand 
there  is  the  demagogic  appeal  to  the  prejudices  of  the  people. 

They  are  taken,  either  from  the  report  of  the  Cullom 
Committee  of  the  United  States  Senate,  1885-86,  or  from 
the  Congressional  Record. 

John  Norris,  editor  Philadelphia  Record: 

A  commission  would  be  dangerous.  In  the  first  place  it 
would  bring  the  railroad  interests  into  politics.  ...  It 
would  give  an  almost  autocratic  power  to  some  few  men. 

Charles  E.  Perkins,  president  of  the  Chicago,  Burlington 
&  Quincy  R.  R. : 


BIG  BUSINESS  AND  THE  CITIZEN        179 

To  require  absolute  publicity  of  rates  and  that  changes 
should  not  be  made  without  public  notice  would  be  a  great 
inconvenience  to  the  business  community.  ...  It  is  of  the 
utmost  importance  to  the  public  that  the  parties  interested, 
the  railroads  and  the  shippers,  should  be  free  to  make  and 
take  advantage  of  varying  rates  when  circumstances  make 
variations  necessary. 

I  am  unable  to  perceive  any  reason  why  railroads  should 
be  required  to  make  annual  reports  to  the  government,  any 
more  than  any  and  all  corporations. 

Senator  Stanford: 

Therefore  if  legislation  interferes  to  decrease  income, 
surely  the  value  of  the  property  is  affected  to  the  extent  of 
the  diminution  of  the  income.  This  is  taking  property  with- 
out compensation.  It  is  confiscation. 

Senator  Sherman: 

I  believe  that  it  will  be  repealed  within  a  short  time. 

Senator  Riddleberger : 

.  .  .  this  bill  as  it  stands  legalizes  discrimination  against 
nine-tenths  of  the  people  of  this  country.  I  believe  it  is 
just  such  a  bill  as  the  railroads  want. 


XV 
THE  REMEDY  OF  WRONGS 1 

THEODORE  ROOSEVELT 

The  Congress  has  the  power  to  charter  corporations  to 
engage  in  interstate  and  foreign  commerce,  and  a  general  law 
can  be  enacted  under  the  provisions  of  which  existing  cor- 
porations could  take  out  Federal  charters  and  new  Federal 
corporations  could  be  created.  An  essential  provision  of 
such  a  law  should  be  a  method  of  predetermining  by  some 
Federal  board  or  commission  whether  the  applicant  for  a 
Federal  charter  was  an  association  or  combination  within 
the  restrictions  of  the  Federal  law.  Provision  should  also 
be  made  for  complete  publicity  in  all  matters  affecting  the 
public  and  complete  protection  to  the  investing  public  and 
the  shareholders  in  the  matter  of  issuing  corporate  securities. 
If  an  incorporation  law  is  not  deemed  advisable,  a  license 
act  for  big  interstate  corporations  might  be  enacted;  or  a 
combination  of  the  two  might  be  tried.  The  supervision  es- 
tablished might  be  analogous  to  that  now  exercised  over 
national  banks.  At  least,  the  antitrust  act  should  be  supple- 
mented by  specific  prohibitions  of  the  methods  which  ex- 

1  From  various  messages  to  Congress. 

181 


182  SOCIAL  UNREST 

perience  has  shown  have  been  of  most  service  in  enabling 
monopolistic  combinations  to  crush  out  competition.  The 
real  owners  of  a  corporation  should  be  compelled  to  do 
business  in  their  own  name.  The  right  to  hold  stock  in 
other  corporations  should  hereafter  be  denied  to  interstate 
corporations,  unless  on  approval  by  the  proper  Government 
officials,  and  a  prerequisite  to  such  approval  should  be  the 
listing  with  the  Government  of  all  owners  and  stockholders, 
both  by  the  corporation  owning  such  stock  and  by  the  cor- 
poration in  which  such  stock  is  owned. 

Moreover,  in  my  judgment  there  should  be  additional  leg- 
islation looking  to  the  proper  control  of  the  great  business 
concerns  engaged  in  interstate  business,  this  control  to  be 
exercised  for  their  own  benefit  and  prosperity  no  less  than 
for  the  protection  of  investors  and  of  the  general  public. 
As  I  have  repeatedly  said  in  messages  to  the  Congress  and 
elsewhere,  experience  has  definitely  shown  not  merely  the 
unwisdom  but  the  futility  of  endeavoring  to  put  a  stop  to 
all  business  combinations.  Modern  industrial  conditions 
are  such  that  combination  is  not  only  necessary  but  inev- 
itable. It  is  so  in  the  world  of  business  just  as  it  is  so  in 
the  world  of  labor,  and  it  is  as  idle  to  desire  to  put  an  end 
to  all  corporations,  to  all  big  combinations  of  capital,  as  to 
desire  to  put  an  end  to  combinations  of  labor.  Corporation 
and  labor  union  alike  have  come  to  stay.  Each  if  properly 
managed  is  a  source  of  good  and  not  evil.  Whenever  in 
either  there  is  evil,  it  should  be  promptly  held  to  account; 


THE  REMEDY  OF  WRONGS  183 

but  it  should  receive  hearty  encouragement  so  long  as  it  is 
properly  managed.  It  is  profoundly  immoral  to  put  or  keep 
on  the  statute  books  a  law,  nominally  in  the  interest  of  pub- 
lie  morality,  that  really  puts  a  premium  upon  public  immor> 
ality  by  undertaking  to  forbid  honest  men  from  doing  what 
must  be  done  under  modern  business  conditions,  so  that  the 
law  itself  provides  that  its  own  infraction  must  be  the  con- 
dition precedent  upon  business  success.  To  aim  at  the  ac- 
complishment of  too  much  usually  means  the  accomplishment 
of  too  little,  and  often  the  doing  of  positive  damage.  In 
my  message  to  the  Congress  a  year  ago,  in  speaking  of  the 
antitrust  laws,  I  said : 

"  The  actual  working  of  our  laws  has  shown  that  the 
effort  to  prohibit  all  combination,  good  or  bad,  is  noxious 
where  it  is  not  ineffective.  Combination  of  capital,  like 
combination  of  labor,  is  a  necessary  element  in  our  present 
industrial  system.  It  is  not  possible  completely  to  prevent 
it;  and  if  it  were  possible,  such  complete  prevention  would 
do  damage  to  the  body  politic.  What  we  need  is  not  vainly 
to  try  to  prevent  all  combination,  but  to  secure  such  rigorous 
and  adequate  control  and  supervision  of  the  combinations 
as  to  prevent  their  injuring  the  public,  or  existing  in  such 
forms  as  inevitably  to  threaten  injury.  ...  It  is  unfortu- 
nate that  our  present  laws  should  forbid  all  combinations 
instead  of  sharply  discriminating  between  those  combinations 
which  do  good  and  those  combinations  which  do  evil." 

"  If  the  folly  of  man  mars  the  general  well-being,  then 


184  SOCIAL  UNREST 

those  who  are  innocent  of  the  folly  will  have  to  pay  part  of 
the  penalty  incurred  by  those  who  are  guilty  of  the  folly. 
A  panic  brought  on  by  the  speculative  folly  of  part  of  the 
business  community  would  hurt  the  whole  business  commu- 
nity; but  such  stoppage  of  welfare,  though  it  might  be  se- 
vere, would  not  be  lasting.  In  the  long  run,  the  one  vital 
factor  in  the  permanent  prosperity  of  the  country  is  the 
high  individual  character  of  the  average  American  worker, 
the  average  American  citizen,  no  matter  whether  his  work 
be  mental  or  manual,  whether  he  be  farmer  or  wage-worker, 
business  man  or  professional  man. 

"  In  our  industrial  and  social  system  the  interests  of  all 
men  are  so  closely  intertwined  that  in  the  immense  majority 
of  cases  a  straight-dealing  man,  who  by  his  efficiency,  by  his 
ingenuity  and  industry,  benefits  himself,  must  also  benefit 
others.  Normally,  the  man  of  great  productive  capacity 
who  becomes  rich  by  guiding  the  labor  of  many  other  men 
does  so  by  enabling  them  to  produce  more  than  they  could 
produce  without  his  guidance;  and  both  he  and  they  share 
in  the  benefit  which  comes  also  to  the  public  at  large.  The 
superficial  fact  that  the  sharing  may  be  unequal  must  never 
blind  us  to  the  underlying  fact  that  there  is  this  sharing,  and 
that  the  benefit  comes  in  some  degree  to  each  man  concerned. 
Normally,  the  wage-worker,  the  man  of  small  means,  and 
the  average  consumer,  as  well  as  the  average  producer,  are  all 
alike  helped  by  making  conditions  such  that  the  man  of  ex- 
ceptional business  ability  receives  an  exceptional  reward  for 


THE  REMEDY  OF  WRONGS  185 

his  ability.  Something  can  be  done  by  legislation  to  help 
the  general  prosperity;  but  no  such  help  of  a  permanently 
beneficial  character  can  be  given  to  the  less  able  and  less 
fortunate  save  as  the  results  of  a  policy  which  shall  inure  to 
the  advantage  of  all  industries  and  efficient  people  who  act 
decently;  and  this  is  only  another  way  of  saying  that  any 
benefit  which  comes  to  the  less  able  and  less  fortunate  must 
of  necessity  come  even  more  to  the  more  able  and  more  for- 
tunate. If,  therefore,  the  less  fortunate  man  is  moved  by 
envy  of  his  more  fortunate  brother  to  strike  at  the  condi- 
tions under  which  they  have  both,  though  unequally,  pros- 
pered, the  result  will  assuredly  be  that  while  damage  may 
come  to  the  one  struck  at,  it  will  visit  with  an  even  heavier 
load  the  one  who  strikes  the  blow.  Taken  as  a  whole,  we 
must  all  go  up  or  go  down  together. 

"  Yet,  while  not  merely  admitting,  but  insisting  upon 
this,  it  is  also  true  that  where  there  is  no  governmental  re- 
straint or  supervision  some  of  the  exceptional  men  use  their 
energies,  not  in  ways  that  are  for  the  common  good,  but  in 
ways  which  tell  against  this  common  good.  The  fortunes 
amassed  through  corporate  organization  are  now  so  large, 
and  vest  such  power  in  those  that  wield  them,  as  to  make  it 
a  matter  of  necessity  to  give  to  the  sovereign  —  that  is,  to 
the  Government,  which  represents  the  people  as  a  whole  — 
some  effective  power  of  supervision  over  their  corporate  use. 
In  order  to  ensure  a  healthy  social  and  industrial  life,  every 
big  corporation  should  be  held  responsible  by,  and  be  ac- 


186  SOCIAL  UNREST 

countable  to,  some  sovereign  strong  enough  to  control  its 
conduct.  I  am  in  no  sense  hostile  to  corporations.  This  is 
an  age  of  combination,  and  any  effort  to  prevent  all  com- 
bination will  be  not  only  useless,  but  in  the  end  vicious,  be- 
cause of  the  contempt  for  law  which  the  failure  to  enforce 
law  inevitably  produces.  We  should,  moreover,  recognize 
in  cordial  and  ample  fashion  the  immense  good  effected  by 
corporate  agencies  in  a  country  such  as  ours,  and  the  wealth 
of  intellect,  energy,  and  fidelity  devoted  to  their  service,  and 
therefore  normally  to  the  service  of  the  public,  by  their  offi- 
cers and  directors.  The  corporation  has  come  to  stay,  just 
as  the  trade  union  has  come  to  stay.  Each  can  do  and  has 
done  great  good.  Each  should  be  favored  so  long  as  it  does 
good.  But  each  should  be  sharply  checked  where  it  acts 
against  law  and  justice.  .  .  . 

"  The  grave  abuses  in  individual  cases  of  railroad  manage- 
ment in  the  past  represent  wrongs  not  merely  to  the  general 
public,  but,  above  all,  wrongs  to  fair-dealing  and  honest  cor- 
porations and  men  of  wealth,  because  they  excite  a  popular 
anger  and  distrust  which  from  the  very  nature  of  the  case 
tends  to  include  in  the  sweep  of  its  resentment  good  and  bad 
alike.  From  the  standpoint  of  the  public  I  can  not  too 
earnestly  say  that  as  soon  as  the  natural  and  proper  resent- 
ment aroused  by  these  abuses  becomes  indiscriminate  and  un- 
thinking, it  also  becomes  not  merely  unwise  and  unfair,  but 
calculated  to  defeat  the  very  ends  which  those  feeling  it 
have  in  view.  There  has  been  plenty  of  dishonest  work  by 


THE  REMEDY  OF  WRONGS  187 

corporations  in  the  past.  There  will  not  be  the  slightest 
let-up  in  the  effort  to  hunt  down  and  punish  every  dishonest 
man.  But  the  bulk  of  our  business  is  honestly  done.  In 
the  natural  indignation  the  people  feel  over  the  dishonesty, 
it  is  all  essential  that  they  should  not  lose  their  heads  and 
get  drawn  into  an  indiscriminate  raid  upon  all  corporations, 
all  people  of  wealth,  whether  they  do  well  or  ill.  Out  of 
any  such  wild  movement  good  will  not  come,  can  not  come, 
and  never  has  come.  On  the  contrary,  the  surest  way  to 
invite  reaction  is  to  follow  the  lead  of  either,  demagogue  or 
visionary  in  a  sweeping  assault  upon  property  values  and 
upon  public  confidence,  which  would  work  incalculable  dam- 
age in  the  business  world  and  would  produce  such  distrust 
of  the  agitators  that  in  the  revulsion  the  distrust  would  ex- 
tend to  honest  men  who,  in  sincere  and  sane  fashion,  are 
trying  to  remedy  the  evils."  2 

2  From  messages  to  Congresses. 


XVI 
ROOSEVELT  AND* BUSINESS  * 

OTTO  H.  KAHN 

As  a  business  man  it  may  not  be  inappropriate  that  I  say 
a  few  words  concerning  the  late  Colonel  Roosevelt's  attitude 
toward  business. 

Contrary  to  the  opinion  held  at  one  time  by  many,  he  was 
a  true  friend  to  business,  as  he  was  a  true  friend  to  every 
one  of  the  callings  which  have  a  legitimate  part  in  the  make- 
up of  the  nation's  activities.  He  fully  realized  the  impor- 
tance to  national  well-being  of  the  growth  and  prosperity  of 
trade  and  commerce.  He  appreciated  the  place  of  finance 
in  the  scheme  of  things.  He  had  due  regard  for  the  tested 
lessons  of  sound  economics. 

He  was  no  trained  business  man,  but  his  unfailing  intui- 
tion of  what  was  right  and  sane  and  timely  revealed  to  him 
the  need  and  the  advantage  and  the  safe  limits  of  reform  in 
respect  of  business  practices  and  business  conceptions  which 
had  grown  up,  naturally  and  almost  necessarily,  during  the 
surging  period  of  immense  material  development  which  set 
in  with  the  close  of  the  Civil  War  and  which  might  be  termed 

1  Reprinted  by  permission  from  The  New  York  Times,  October 

5,    1919- 

189 


190  SOCIAL  UNREST 

America's  "  industrial  pioneer  period."  He  saw  that  busi- 
ness had  grown  to  exercise  excessive  and  in  certain  aspects 
almost  uncontrolled  power,  and  he  knew  that  such  power, 
whenever,  wherever  and  by  whomsoever  exercised,  breeds 
abuse  and  is  a  menace  both  to  the  State  and  to  those  even 
who  wield  it. 

He  determined  to  challenge  that  power,  to  impose  reason- 
able restraints  and  regulations  upon  it.  He  believed  that  if 
it  were  left  to  run  its  course  unchecked,  the  inevitable  result, 
in  due  course  of  time,  would  be  a  violent  reaction  against  it, 
big  with  the  potentialities  of  great  harm  to  the  legitimate 
interests  of  business  as  well  as  to  the  people  at  large  and  to 
American  institutions.  He  framed  his  program  without 
heat  or  animosity,  with  that  sure  adaptation  of  the  means 
to  the  end,  with  that  practical  common  sense  and  that  avoid- 
ance of  theories  and  extremes,  which  always  characterized 
his  mental  processes  and  his  actions  in  office. 

It  took  courage  at  that  time  to  challenge  seriously  the 
power  of  business,  and  to  summon  it  to  surrender  certain 
prerogatives  which  it  had  gradually  acquired  and  which  it 
had  come  to  regard  as  naturally  and  justly  due  to  it.  It 
had  never  been  thus  seriously  and  definitely  challenged  be- 
fore. What  afterward  became  a  pastime  that  any  one  could 
indulge  in  with  impunity  and  with  supposed  political  advan- 
tage, what  afterward  became  "  business  baiting "  and  ha- 
rassing bureaucratic  over-regulation,  was  an  act  of  great 
courage  at  the  time  aad  under  the  circumstances  when  Roose- 


ROOSEVELT  AND  BUSINESS  191 

velt  undertook  it,  and  was  kept  by  him  within  such  limita- 
tions as  to  make  the  measures  for  which  he  stood  appear  con- 
servative indeed  compared  to  those  which  were  enacted  sub- 
sequently. 

He  encouraged  the  co-operation  of  leading  business  men 
in  framing  and  carrying  out  the  measures  which  he  believed 
to  be  called  for  and  which  he  was  convinced  would  prove 
ultimately  for  the  best  interest  of  business  itself.  They  re- 
fused. They  believed  themselves  strong  enough  to  defeat 
his  purposes.  They  tried  to  dissuade  him,  failing  in  which 
they  set  out  to  antagonize  and  thwart  him.  They  did  not 
succeed,  but  the  consequence  of  their  attitude  was  that  a 
bitter  conflict  was  created  between  Colonel  Roosevelt  and 
representatives  of  business,  and  that  as  a  result  he  felt  him- 
self called  upon  to  resort  to  vigorous  and  incisive  appeals  to 
public  opinion,  appeals  which,  in  the  heat  of  battle,  at  times 
went  beyond  the  mark. 

Yet  while  the  irritation  and  the  heat,  stress,  and  strain 
of  the  fight  colored  his  utterances  and  affected  his  actions  in 
individual  cases  at  times,  he  never  permitted  himself,  in  the 
legislative  measures  which  he  advocated  and  promoted,  to  go 
beyond  the  bounds  of  moderation  and  the  limits  of  reason- 
able correction.  In  the  midst  of  hard  blows  given  and 
taken,  he  retained  his  unfailing  sense  of  what  was  sane,  bal- 
anced, fair,  practicable,  called  for.  Vindictiveness  did  not 
enter  into  his  program. 

Each  one  of  the  measures  for  which  he  became  sponsor 


i92  SOCIAL  UNREST 

in  the  great  reform  movement  which  he  inaugurated  has 
stood  the  test  of  time.  None  of  them  has  harmed  or  im- 
peded legitimate  business,  however  big  in  scope.  Business 
would  not  go  back,  if  it  could,  to  the  conditions  which,  in 
certain  respects,  existed  before  the  Roosevelt  era. 

And  just  as  he  had  the  courage  to  tackle  "  big  business  " 
in  the  hey-dey  of  its  power  and  to  devise  and  enforce  re- 
straints and  remedies,  so  he  would  have  had  the  courage  to 
tackle  and  bring  under  restraint  any  other  element  or  com- 
bination which  came  to  exercise  a  degree  of  power  incom- 
patible with  the  welfare  and  due  balance  of  the  community 
at  large,  and  tended  to  become  a  law  unto  itself. 

It  was  my  great  honor  and  privilege  to  be  consulted  by 
him  from  time  to  time,  in  the  course  of  the  past  few  years, 
as  to  the  economic  and  business  problems  of  the  day.  I 
know,  therefore,  how  his  mind  worked  and  his  purposes 
shaped  themselves  in  respect  of  these  problems.  And  I  know 
that  if  he  had  been  called  to  the  leadership  of  the  nation 
again,  as  he  undoubtedly  would  have  been  but  for  the  national 
calamity  of  his  premature  death,  he  would  have  builded  a 
structure  in  which  hampering  paternalism,  outlandish  notions, 
visionary  theories  and  class-serving  tendencies  would  have  had 
no  place,  in  which  all  constructive  forces  would  have  had  free 
scope,  and  the  clashing  interests,  distracting  agitations  and 
confusing  aims  and  claims  that  are  harassing  the  country 
would  have  found  themselves  under  the  dominance  of  a  strong 
peace  —  of  even-handed  and  enlightened  justice. 


XVII 
ORGANIZED  LABOR1 

JOHN  MITCHELL 

To  the  ordinary  man  of  affairs,  immersed  in  his  business 
and  the  daily  routine  of  life,  trade  unionism  may  seem  a 
bewildering  maze  of  conflicting  ideas  and  doctrines.  Such 
a  man,  unless  he  has  a  special  interest  in  the  subject,  is 
liable  to  have  his  opinions  formed  from  disjointed,  scatter- 
ing, and  often  untrustworthy  accounts.  At  one  time  he 
reads  of  trade  unionists  attempting  to  raise  wages  or  reduce 
hours  of  labor  in  a  particular  factory,  or  demanding  the 
recognition  of  the  union,  or  urging  a  sympathetic  strike  or 
resisting  or  denouncing  a  federal  injunction.  At  other 
times,  the  trade  union  seems  to  be  taken  up  with  such  ques- 
tions as  whether  the  foreman  shall  or  shall  not  belong  to 
the  union,  whether  the  unionists  shall  or  shall  not  work  with 
non-union  men,  whether  a  particular  factory  is  in  a  sani- 
tary condition,  whether  a  certain  machine  is  speeded  up  too 
much  or  not  enough,  whether  the  temperature  of  a  given 
factory  is  such  as  to  endanger  the  health  of  the  operatives, 
what  differential  should  be  paid  for  a  new  machine,  and  so 

1  Published  by  courtesy  of  Mrs.  John  Mitchell ;  first  published  as 
chapter  i  in  "  Organized  Labor,"  by  John  Mitchell. 

193 


194  SOCIAL  UNREST 

on.  At  still  other  times,  he  reads  of  unionists  leaving  their 
uncompleted  work  at  the  stroke  of  the  hour,  demanding  the 
abolition  of  truck  stores,  insisting  upon  the  weighing  or  meas- 
urement of  their  product,  refusing  to  work  on  goods  made 
by  non-unionists,  or  boycotting  certain  individuals  or  prod- 
ucts. In  some  instances  the  unionists  seem  to  be  insisting 
upon  pay  by  the  piece,  and  in  other  cases,  refusing  absolutely 
to  have  anything  to  do  with  the  piece  system.  At  one  time 
the  unionists  appear  to  be  at  war  with  one  another  or  with 
employers,  and  at  other  times  they  are  meeting  amicably  in 
gigantic  federations,  or  legislating  in  conjunction  with  asso- 
ciations of  employers  for  the  conduct  and  management  of 
great  industries. 

In  the  hundreds  of  trade  unions  that  exist  and  the  thou- 
sands of  local  groups  into  which  these  organizations  are  di- 
vided, various  problems  are  encountered  and  various  meas- 
ures taken  in  each  exigency.  The  result  is  a  perfectly  be- 
wildering series  of  rules  and  regulations  in  which  the  ordi- 
nary man  sees  neither  rhyme  nor  reason,  except,  perhaps, 
that  he  observes  in  vague  outline  the  ever-present  desire  on 
the  part  of  the  workingmen  to  improve  their  conditions  and 
to  raise  their  standard  of  life  and  labor.  But  even  when 
the  general  public  clearly  understands  this  ideal,  it  fails  to 
see  why  so  simple  an  ideal  requires  so  many  and  so  elaborate 
regulations,  and  in  many  cases,  though  the  good  motives  of 
trade  unions  are  not  impugned,  their  wisdom  is  questioned. 

The  complexity  of  trade  unionism,  however,  is  merely  the 


ORGANIZED  LABOR  195 

complexity  of  human  life  itself.  No  matter  how  simple  and 
fundamental  the  principles  and  constitution  of  an  organiza- 
tion, its  rules  and  regulations  necessarily  become  complex  as 
soon  as  they  encounter  the  diverse  conditions  that  character- 
ize modern  life.  Law  in  its  simplest  form  stands  for  a 
certain  rough  ideal  of  justice  and  for  the  maintenance  under 
certain  conditions  of  the  life,  liberty  and  property  of  the 
individual.  While,  however,  in  primitive  times  the  law  is 
simple,  direct,  and  easily  recognizable,  the  cases  being  de- 
cided with  the  rough-handed  justice  of  the  monarch  dividing 
the  infant,  the  intricate  complexity  of  modern  life  renders 
it  necessary  to  decide  even  the  simplest  cases  by  reference  to 
hundreds  of  precedents.  The  commandment,  "  Thou  shalt 
not  steal,"  contains  a  commentary  running  through  hun- 
dreds of  thousands  or  even  millions  of  accounts  of  cases  of 
men  who  have  been  tried  and  acquitted  or  convicted.  Even 
a  simple  contract  involves  the  most  elaborate  series  of  con- 
ditions, expressed  or  implied,  in  order  to  guard  the  inter- 
ests of  both  parties. 

In  its  fundamental  principle  trade  unionism  is  plain  and 
clear  and  simple.  Trade  unionism  starts  from  the  recogni- 
tion of  the  fact  that  under  normal  conditions  the  individual, 
unorganized  workman  cannot  bargain  advantageously  with 
the  employer  for  the  sale  of  his  labor.  Since  the  working- 
man  has  no  money  in  reserve  and  must  sell  his  labor  imme- 
diately, since,  moreover,  he  has  no  knowledge  of  the  market 
and  no  skill  in  bargaining,  since,  finally  he  has  only  his  own 


196  SOCIAL  UNREST 

labor  to  sell,  while  the  employer  engages  hundreds  or  thou- 
sands of  men  and  can  easily  do  without  the  services  of  any 
particular  individual,  the  workingman,  if  bargaining  on  his 
own  account  and  for  himself  alone,  is  at  an  enormous  disad- 
vantage. Trade  unionism  recognizes  the  fact  that  under 
such  conditions  labor  becomes  more  and  more  degenerate, 
because  the  labor  which  the  workman  sells  is,  unlike  other 
commodities,  a  thing  which  is  of  his  very  life  and  soul  and 
being.  In  the  individual  contact  between  a  rich  employer 
and  a  poor  workman,  the  laborer  will  secure  the  worst  of  it ; 
he  is  progressively  debased,  because  of  wages  insufficient  to 
buy  nourishing  food,  because  of  hours  of  labor  too  long  to 
permit  sufficient  rest,  because  of  conditions  of  work  destruc- 
tive of  moral,  mental,  and  physical  health,  and  degrading 
and  annihilating  to  the  laboring  classes  of  the  present  and 
the  future,  and,  finally,  because  of  danger  from  accident  and 
disease,  which  kill  off  the  workingman  or  prematurely  age 
him.  The  "  individual  bargain,"  or  individual  contract,  be- 
tween employers  and  men  means  that  the  condition  of  the 
worst  and  lowest  man  in  the  industry  will  be  that  which  the 
best  man  must  accept.  From  first  to  last,  from  beginning 
to  end,  always  and  everywhere,  trade  unionism  stands  un- 
alterably opposed  to  the  individual  contract.  There  can  be 
no  concession  or  yielding  upon  this  point.  No  momentary 
advantage,  however  great  or  however  ardently  desired,  no 
advance  in  wages,  no  reduction  in  hours,  no  betterment  in 
conditions,  will  permanently  compensate  workingmen  for 


ORGANIZED  LABOR  197 

even  a  temporary  surrender  in  any  part  of  this  fundamental 
principle.  It  is  this  principle,  the  absolute  and  complete 
prohibition  of  contracts  between  employers  and  individual 
men,  upon  which  trade  unionism  is  founded.  There  can  be 
no  permanent  prosperity  to  the  working  classes,  no  real  and 
lasting  progress,  no  consecutive  improvement  in  conditions, 
until  the  principle  is  firmly  and  fully  established,  that  in 
industrial  life,  especially  in  enterprises  on  a  large  scale,  the 
settlement  of  wages,  hours  of  labor,  and  all  conditions  of 
work,  must  be  made  between  employers  and  workingmen 
collectively  and  not  between  employers  and  workingmen 
individually. 

To  find  a  substitute  for  the  individual  bargain,  which  de- 
stroys the  welfare  and  the  happiness  of  the  whole  working 
class,  trade  unions  were  founded.  A  trade  union,  in  its 
usual  form,  is  an  association  of  workmen  who  have  agreed 
among  themselves  not  to  bargain  individually  with  their  em- 
ployer or  employers,  but  to  agree  to  the  terms  of  a  collective 
or  joint  contract  between  the  employer  and  the  union.  The 
fundamental  reason  for  the  existence  of  the  trade  union  is 
that  by  it  and  through  it,  workmen  are  enabled  to  deal  col- 
lectively with  their  employers.  The  difference  between  the 
individual  and  the  collective  or  joint  bargain  is  simply  this, 
that  in  the  individual  contract  or  bargain,  one  man  of  a 
hundred  refuses  to  accept  work,  and  the  employer  retains 
the  services  of  ninety  and  nine;  whereas  in  the  collective 
bargain  the  hundred  employees  act  in  a  body,  and  the  em- 


198  SOCIAL  UNREST 

ployer  retains  or  discharges  all  simultaneously  and  upon  the 
same  terms.  The  ideal  of  trade  unionism  is  to  combine  in 
one  organization  all  the  men  employed,  or  capable  of  being 
employed,  at  a  given  trade,  and  to  demand  and  secure  for 
each  and  all  of  them  a  definite  minimum  standard  of  wages, 
hours,  and  conditions  of  work. 

Trade  unionism  thus  recognizes  that  the  destruction  of 
the  workingman  is  the  individual  bargain,  and  the  salvation 
of  the  workingman  is  the  joint,  united,  or  collective  bargain. 
To  carry  out  a  joint  bargain,  however,  it  is  necessary  to  es- 
tablish a  minimum  of  wages  and  conditions  which  will 
apply  to  all.  By  this  is  not  meant  that  the  wages  of  all 
shall  be  the  same,  but  merely  that  equal  pay  shall  be  given 
for  equal  work.  There  cannot  be  more  than  one  minimum 
in  a  given  trade,  in  a  given  place,  at  a  given  time.  If  the 
bricklayers  of  the  city  of  New  York  were  all  organized  and 
the  union  permitted  half  of  its  members  to  work  for  forty 
cents  an  hour,  while  the  other  half,  in  no  wise  better  work- 
men, were  compelled  or  led  to  ask  for  fifty  cents,  the  result 
would  be  that  the  men  receiving  fifty  cents  would  be  obliged 
either  to  lower  their  wages  or  get  out  of  the  trade.  To  se- 
cure to  any  union  man  fifty  cents  an  hour,  all  union  men  of 
equal  skill  must  demand  at  least  an  equal  sum.  The  man 
who  wants  fifty  cents  an  hour  is  not  injured  by  other  union- 
ists asking  or  getting  ten  or  twenty  cents  in  excess  of  this 
minimum,  but  he  is  injured  by  fellow-craftsmen  accepting 
any  wage  less  than  the  minimum.  The  same  rule  of  col- 


ORGANIZED  LABOR  199 

lective  bargaining  applies  to  the  hours  of  labor.  If  all 
union  bricklayers  in  New  York  City  were  to  receive  four 
dollars  a  day  and  some  were,  for  this  pay,  to  work  eight 
hours,  others  ten,  and  still  others  twelve  and  fifteen  hours, 
the  result  would  be  that  the  employers  would  by  preference 
employ  the  men  who  were  willing  to  work  fifteen  hours.  As 
a  consequence,  the  men  willing  to  work  only  eight  or  ten 
hours  would  lose  their  positions  or  be  obliged  either  to  re- 
duce their  wages  or  to  work  as  long  as  their  competitors, 
who  were  employed  for  twelve  or  fifteen  hours.  What  is 
true  of  wages  and  of  hours  of  labor  is  equally  true  of  all 
the  conditions  of  work.  If  some  members  of  the  union  were 
allowed  to  work  with  machinery  unguarded,  whereas  others 
insisted  upon  its  protection;  if  some  were  to  work  in  any 
sort  of  a  factory,  under  any  sort  of  conditions,  with  any 
sort  of  a  foreman  or  master,  while  others  insisted  upon 
proper  surroundings;  if  some  were  willing  to  be  so  over- 
rushed  as  to  do  more  than  a  fair  day's  work  for  a  fair  day's 
wage,  or  would  allow  themselves  to  be  forced  into  patroniz- 
ing truck  stores,  to  submit  to  arbitrary  fines  and  unreason- 
able deductions,  whereas  others  would  rebel  at  these  impo- 
sitions, it  would  result  that  in  the  competition  among  the 
men  to  retain  their  positions,  those  who  were  most  pliant 
and  lowest  spirited  would  secure  the  work,  and  the  wages, 
hours  of  labor,  and  conditions  of  employment  would  be  those 
set  or  accepted  by  the  poorest,  most  cringing,  and  least  in- 
dependent of  workers.  If  the  trade  union  did  not  insist 


200  SOCIAL  UNREST 

upon  enforcing  common  rules  providing  for  equal  pay  for 
equal  work  and  definite  conditions  of  safety  and  health  for 
all  workers  in  the  trade,  the  result  would  be  that  all  pre- 
tense of  a  joint  bargain  would  disappear,  and  the  employ- 
ers would  be  free  constantly  to  make  individual  contracts 
with  the  various  members  of  the  union.  The  trade  union 
does  not  stand  for  equal  earnings  of  all  workmen.  It  does 
not  object  to  one  man's  earning  twice  as  much  as  the  man 
working  by  his  side,  providing  both  men  have  equal  rates  of 
pay,  equal  hours  of  work,  equal  opportunities  of  securing 
work,  and  equal  conditions  of  employment.  The  union  does 
not  object  to  an  employer's  rewarding  especially  efficient 
workers,  or  even  favored  workers,  by  paying  them  more 
than  the  union  scale,  or  granting  them  shorter  hours  than 
provided  for  by  the  joint  agreement.  What  the  union  does 
stand  for  is  merely  equal  rates  of  pay  —  equal  pay  for  equal 
work ;  and  while  it  will  allow  a  man  to  receive  twice  as  much 
as  his  fellow-craftsmen,  it  will  not  permit  him  to  do  so  by 
underbidding  them  in  wages  or  by  working  under  less  fa- 
vorable conditions  or  for  longer  hours.  Neither  does  the 
union  oppose  competition  among  unionists  for  positions, 
although  it  demands  that  this  competition  be  solely  upon 
the  basis  of  efficiency  and  not  upon  that  of  reduced  wages, 
lengthened  hours,  or  any  abatement  from  the  conditions 
fixed  by  the  collective  bargain. 

This  principle  of  trade  unionism  will  explain  many  of 
the  seeming  peculiarities  and  many  of  the  numerous  rules 


ORGANIZED  LABOR  201 

of  labor  organizations.  It  will  supply  an  answer  to  the 
question  so  naively  put  by  many  people,  as  to  why  the  union 
will  not  allow  a  man  to  accept  two  dollars  a  day,  while  all 
other  werkers  in  that  trade  are  receiving  three  dollars,  or  to 
accept  forty  cents  for  mining  a  ton  of  coal,  when  the  mini- 
mum scale  is  fifty-six  cents.  "  Why,"  it  is  inquired,  "  should 
not  a  man  be  allowed  to  accept  a  reduction  of  wages  if  he 
wish  ?  Why  should  a  man  be  compelled  to  take  more  wages 
than  he  wants  ?  "  The  answer  of  the  unions  is  that  as  a 
result  of  such  individual  bargains,  the  employer  would  give 
all  the  work  to  the  men  who  were  satisfied  with  two  dollars 
a  day,  and,  consequently,  the  men  who  demanded  three  dol- 
lars would  be  thrown  out  of  employment,  and  therefore 
forced  to  accept  a  lower  rate  of  remuneration.  It  is  this 
necessity  of  equal  pay  for  equal  work  that  compels  trade 
unions  to  say  to  the  employer:  "  Either  you  shall  pay  three 
dollars  to  the  man  who  only  asks  for  two,  or  we  will  not 
work  for  you.  We  recognize  your  right  to  employ  or  not 
to  employ  whomsoever  you  wish,  but  either  you  must  pay 
at  least  three  dollars,  or  else  all  the  members  of  our  union 
will  refuse  to  work  for  you." 

This  necessity  of  defending  the  collective  bargain,  or  con- 
tract, explains  many  features  of  trade  union  policy.  If  the 
union  is  to  maintain  its  standard  of  wages  by  collective  bar- 
gaining, it  must  prevent  the  employer,  by  individual  bar- 
gains with  individual  workmen,  from  making  deductions 
from  wages  and  th«B  breaking  down  the  minimum  wage 


202  SOCIAL  UNREST 

agreed  upon  between  the  union  and  the  employer.  If  trade 
unions  are  to  tolerate  truck  stores,  not  only  will  unfair  and 
extortionate  prices  be  charged,  but  individual  men  desiring 
the  favor  of  the  employer  will  compete  for  their  jobs  by 
purchasing  more  and  more  goods  in  the  company  store.  In- 
stead of  offering  to  work  for  two  dollars  a  day  when  the 
standard  rate  is  three,  a  man  may  simply  take  for  his  work 
an  order  on  the  store,  which  though  nominally  worth  three, 
will  actually  be  worth  two  dollars.  It  is  well  known  that 
companies  operating  truck  stores  for  profit  in  connection 
with  their  factories,  invariably  give  the  preference  in  the 
matter  of  jobs  to  men  who  best  patronize  the  stores,  with  the 
result  that  competition  for  jobs  among  workmen  becomes 
as  severe  as  ever,  and  the  consequent  undercutting  or  under- 
bidding takes  the  vicious  form  of  spending  as  much  as  pos- 
sible at  the  company  store.  The  toleration  of  the  company 
store  may  thus  come  to  mean  a  series  of  individual  agree- 
ments, real  but  not  expressed,  by  which  individual  working- 
men  permit  themselves  to  suffer  deductions  from  their  real 
wages  in  the  form  of  profits  on  the  goods  which  they  are 
obliged  to  buy. 

The  prohibition  by  unions  of  arbitrary  fines  and  docking 
is  due  to  this  same  desire  to  maintain  a  common  minimum 
standard  of  wages  and  conditions.  Apart  from  the  direct 
evil  and  oppression  that  result  from  the  unlimited  powers  of 
employers  arbitrarily  to  levy  fines  or  make  deductions  from 
wages,  there  is  the  added  danger  that,  by  this  means,  the 


ORGANIZED  LABOR  203 

employers  will  break  down  the  collective  bargain  and  sub- 
stitute for  it  a  series  of  individual  bargains.  If  the  trade 
unions  secure  from  the  employer  a  minimum  daily  three- 
dollar  wage,  the  effect  of  this  common  action  will  be  nulli- 
fied and  destroyed  if  some  individual  workmen  submit  in 
any  form  to  an  average  deduction  of  ten  cents  a  day,  whether 
for  fines  or  docking,  others  to  a  deduction  of  twenty  cents, 
and  others  to  one  of  fifty  cents  or  a  dollar  a  day.  The 
union  is  not  opposed  to  a  deduction  from  wages  in  case  of 
proved  negligence  or  poor  workmanship ;  but  as  these  fines 
and  this  docking  affect  the  union  wage  they  should  be 
jointly  determined  upon  by  the  employer  and  union,  and  not 
by  the  employer  alone,  nor  between  the  employer  and  the 
individual  workman.  If  the  individual  employee  is  per- 
mitted to  make  any  rebate  or  allow  any  deduction  whatso- 
ever, under  whatever  guise,  from  the  wages  fixed  as  a  mini- 
mum by  the  union,  then  the  whole  principle  of  a  union  scale 
of  wages  will  fall  to  the  ground. 

The  necessity  of  maintaining  the  collective,  rather  than 
the  individual,  bargain  explains  why  the  trade  union  is 
sometimes  opposed  to  the  piece  system  and  sometimes  not. 
When  the  piece  price  can  be  regulated  collectively,  as  in 
bituminous  coal  mining,  the  unions  are  not  antagonistic  to, 
but  actually  in  favor  of,  this  system.  Where,  however,  each 
separate  job  differs  and  a  price  must  be  put  upon  it  sepa- 
rately, payment  by  the  piece  degenerates  into  a  system  of 
underbidding  and  undercutting  and  to  the  resurrection  of 


204  SOCIAL  UNREST 

individual  bargaining  in  one  of  its  worst  forms.  Where 
the  price  cannot  be  fixed  collectively  and  where  time  wages 
cannot  be  paid,  the  union  has  solved  the  problem,  at  least 
partially,  by  having  the  shop  foreman,  a  representative  of 
all  the  men  in  the  establishment,  fix  the  price  of  the  work  in 
concert  with  the  employer  or  foreman. 

Like  the  wage  scale,  the  length  of  the  working  day,  as 
determined  by  the  union  and  employers,  must  be  protected 
from  changes  made  by  individual  workmen.  The  individual 
workman  cannot  be  allowed  to  work  longer  hours  than  the 
union  prescribes  as  a  maximum,  or  to  work  more  overtime, 
or  at  different  times,  or  for  less  compensation  than  is  fixed 
by  the  collective  bargain.  If  the  individual  workman  is  to 
decide  for  himself  how  much  overtime  he  will  work,  and 
at  what  rate  of  compensation,  he  can  just  as  surely  underbid 
other  workmen  as  by  accepting  a  lower  wage  at  the  start. 

There  is  hardly  an  action  taken  by  the  trade  unions,  hardly 
a  demand  made,  which  does  not  either  immediately  or 
ultimately,  directly  or  indirectly,  involve  this  principle. 
Whether  the  union  demand  a  higher  standard  of  healthful- 
ness,  comfort,  or  decency  in  the  factories,  or  a  greater  degree 
of  protection  from  machinery,  or  any  other  concession  min- 
istering to  the  health  or  safety  of  the  employee,  the  demand 
is  always  in  the  form  of  a  certain  minimum  for  all  workers. 
The  union  does  not  prohibit  a  man  from  being  paid  more 
wages  for  less  hours  than  his  fellows,  but  it  does  claim  that 
no  man  shall  work  in  union  shops  for  less  than  a  certain 


ORGANIZED  LABOR  205 

rate,  for  more  than  a  certain  number  of  hours,  for  more 
than  so  and  so  much  overtime,  or  at  a  lower  rate  for  over- 
time, or  with  less  than  a  given  amount  of  protection  to  his 
health,  comfort,  safety,  and  well-being.  The  employer  may, 
if  he  wish,  make  special  provision  for  the  health  of  a  fa- 
vorite workman,  just  as  he  may  pay  above  the  union  rate  or 
allow  an  employee,  in  return  for  the  minimum  wage,  to 
work  less  than  the  maximum  number  of  working  hours  pre- 
scribed by  the  union.  What  the  union  insists  upon,  how- 
ever, is  that  certain  minimum  requirements  be  fulfilled  for 
the  health,  comfort,  and  safety  of  all,  in  order  that  the 
workingmen  shall  not  be  obliged  to  compete  for  jobs  by 
surrendering  their  claims  to  a  reasonable  amount  of  pro- 
tection for  their  health,  and  for  their  life  and  limb. 

The  trade  union  thus  stands  for  the  freedom  of  contract 
on  the  part  of  workingmen  —  the  freedom  or  right  to  con- 
tract collectively.  The  trade  union  also  stands  for  defi- 
niteness  of  the  labor  contract.  The  relation  between  em- 
ployer and  employee  is  complex  in  its  nature,  even  though  it 
appear  simple.  The  workingman  agrees  to  work  at  the 
wage  offered  to  him  by  the  employer,  at,  say,  fifteen  dollars 
a  week,  but  frequently  nothing  is  said  as  to  hours  of  labor, 
pauses  for  meals  and  rest,  intensity  of  work,  conditions  of 
the  workshop,  protection  of  the  workman  against  filthy  sur- 
roundings or  unguarded  machinery,  character  of  his  fellow- 
workmen,  liability  of  the  employer  for  accident,  nor  any  of 
the  thousand  conditions  which  affect  the  welfare  of  the 


2o6  SOCIAL  UNREST 

workman  and  the  gain  of  both  employer  and  employee. 
There  has  always  been  a  general  tacit  understanding  be- 
tween employers  and  employees  that  these  conditions  shall 
roughly  conform  to  the  usual  and  ordinary  custom  of  the 
trade,  but  in  the  absence  of  an  agreement  with  the  union,  it 
is  in  the  power  of  the  employer  to  make  such  rules  abso- 
lutely, or  to  change  or  amend  them  at  such  time  as  he  thinks 
proper.  Like  the  railroad  timetables,  the  individual  con- 
tract reads,  "  Subject  to  change  without  notice." 

The  recognition  of  the  union  is  nothing  more  nor  less 
than  the  recognition  of  the  principle  for  which  trade  union- 
ism stands,  the  right  to  bargain  collectively  and  to  insist 
upon  a  common  standard  as  a  minimum.  Workingmen  have 
a  nominal,  but  not  a  real  freedom  of  contract,  if  they  are 
prevented  from  contracting  collectively  instead  of  individ- 
ually. The  welfare  of  the  working  classes,  as  of  society, 
depends  upon  the  recognition  of  this  principle  of  the  right 
of  employees  to  contract  collectively.  An  employer,  be  he 
ever  so  well-meaning,  stands  in  the  way  of  future  progress 
if  he  insist  upon  dealing  with  his  workmen  "  as  individuals." 
While  in  his  establishment  wages  may  not  by  this  means  be 
reduced,  owing  to  the  fact  that  other  establishments  are  or- 
ganized, still  the  principle  for  which  he  stands,  if  universally 
adopted,  would  mean  the  degradation  and  impoverishment 
of  the  working  classes.  There  are  many  employers  who 
surrender  the  principle  of  the  individual  bargain  without  ac- 
cepting the  principle  of  the  collective  bargain.  These  em- 


ORGANIZED  LABOR  207 

ployers  state  that  they  do  not  insist  upon  dealing  with 
their  employees  as  individuals,  but  that  they  must  retain  the 
right  of  dealing  with  "  their  own  employees  solely,"  and  that 
they  must  not  be  forced  to  permit  a  man  who  is  not  their 
own  employee  to  interfere  in  their  business.  The  right  to 
bargain  collectively,  however,  or  to  take  any  other  con- 
certed action,  necessarily  involves  the  right  to  representation. 
Experience  and  reason  both  show  that  a  man,  even  if  other- 
wise qualified,  who  is  dependent  upon  the  good  will  of  an 
employer,  is  in  no  position  to  negotiate  with  him,  since  an 
insistence  upon  what  he  considers  to  be  the  rights  of  the  men 
represented  by  him  may  mean  his  dismissal  or,  at  all  events, 
the  loss  of  the  favor  of  his  employer.  Not  only  should 
workingmen  have  the  right  of  contracting  collectively,  but 
they  should  also  have  the  right  of  being  represented  by  whom- 
soever they  wish.  The  denial  of  the  right  of  representation 
is  tyranny.  Without  the  right  to  choose  their  representa- 
tive, the  men  cannot  enjoy  the  full  benefit  of  collective  bar- 
gaining; and  without  the  right  of  collective  bargaining,  the 
door  is  opened  to  the  individual  contract  and  to  the  pro- 
gressive debasement  of  the  working  classes,  and  to  the  de- 
terioration of  conditions  of  work  to  the  level  of  conditions 
in  the  sweated  and  unregulated  trades.  To  avoid  this  ca- 
lamity and  to  raise  the  working  classes  to  a  high  state  of 
efficiency  and  a  high  standard  of  citizenship,  the  organized 
workmen  demand  and  insist  upon  "  the  recognition  of  the 
union." 


XVIII 
THE  EFFICIENCY  OF  LABOR 

CHARLES  BUXTON  GOING 

"  To  the  victors  belong  the  spoils." 

Is  the  law  brutal,  or  is  the  seeming  brutality  in  the  ex- 
pression? It  is  the  law  of  nature  —  the  law  of  evolution. 
If  we  refine  our  definitions  of  "  victor  "  and  "  spoils,"  if  we 
use  the  terms  in  their  finest  senses  instead  of  their  cruder  or 
meaner  significance,  may  it  not  prove  the  law  of  righteous- 
ness also  —  a  law  spiritual  as  well  as  a  law  natural? 

In  its  more  literal  interpretation,  it  is  the  established 
law  of  business.  May  we  not,  even  in  this  field,  so  dig- 
nify it,  so  moralize  it  by  a  truer  understanding  of  what  it 
should  mean,  that  it  may  be  made  righteous  as  well  as 
practical? 

Industrially,  there  is  no  great  question  as  to  the  definition 
of  "  spoils,"  but  there  is  turbulent  and  endless  question  as  to 
who  are  the  "  victors." 

For  our  present  purpose,  at  least,  the  spoils  are  the  profits 
which  supply  effective  stimulus  and  offer  just  reward  for 
initiative,  energy,  skill,  labor.  They  are  the  cargo  of  wealth 
brought  back  in  exchange  for  the  substance,  the  effort,  the 

209 


210  SOCIAL  UNREST 

time  we  have  adventured  in  manufacture  and  commerce. 
The  Indies  of  the  nineteenth  century  and  the  twentieth  lie 
across  the  seas  of  invention,  of  production,  of  markets. 
They  are  richer  than  any  Indies,  sought  of  old;  and  the 
vision  of  Columbus,  the  faith  of  Isabella,  the  courage  of  the 
masters  of  the  caravels,  and  the  murmurings  of  the  crew, 
come  down  to  us  through  five  centuries  as  prototypes  of 
exactly  similar  manifestations  living  and  working  to-day. 

This  is  the  crux  of  our  immediate  problem.  Returning 
to  our  simile,  was  the  victory  due,  and  should  the  spoils  be 
awarded,  to  Columbus  who  dreamed  and  dared,  to  Isabella 
who  believed  and  financed,  to  the  captains  who  commanded 
and  navigated  —  or  were  the  crew  also  among  the  victors, 
deserving  something  more  than  mere  wages,  some  propor- 
tionate share  in  the  greater  reward? 

Any  modern  industrial  venture  enlists  and  attempts  to  co* 
ordinate,  to  bring  together  into  successful  joint  effort,  ele^ 
ments  closely  corresponding  to  those  that  were  enlisted  in 
the  enterprise  of  discovery  that  opened  the  gateway  to  the 
Western  continent.  In  a  broad  general  way  and  up  to  a 
certain  point,  their  interests  are  identical.  Backers,  leaders 
and  followers  all  live  by  success,  all  suffer  from  failure. 
But  when  we  pass  beyond  this  point  and  begin  to  deal  with 
particulars,  the  interests  of  the  several  parties  become  differ- 
ent and  often  hostile.  Who  are  the  victors  and  how  shall 
they  divide? 

Unfairness  in  allotting  their  shares  of  the  spoil  is  the 


THE  EFFICIENCY  OF  LABOR  211 

energizing  force  in  the  current  struggle  of  discontent  and 
political  disturbance.  Beside  the  great  contending  figures  of 
capital  and  labor,  long  recognized,  another  is  taking  its  place 
—  the  figure  of  the  consumer,  asserting  his  part  in  the  great 
development  and  demanding  relief  from  over-exploitation 
by  the  older  organized  interests.  And  yet  a  fourth  factor, 
less  vocal  and  therefore  less  widely  discerned,  is  by  some 
discovered  and  declared  to  be  greatest  of  all  —  the  genius  of 
ideas,  by  which  alone  capital  and  labor  are  set  in  motion, 
made  productive  forces  instead  of  huge  idle  possibilities. 
Financier,  inventor,  promoter,  manufacturer,  laborer,  dis- 
tributor, consumer — all  are  indispensable  to  the  cycle  of 
success.  Whose,  then,  is  really  the  victory,  and  how  shall 
the  spoils  be  divided  ? 

The  question  of  the  hour  is  a  juster  division  of  the  profits 
of  industry,  first  between  consumer  and  producer;  second 
among  productive  genius,  capital,  and  labor;  third  among 
individual  laborers.  The  difficulty  of  the  hour  is  the  lack 
of  standards  and  means  of  measurement  by  which  a  fair 
scale  of  division  can  be  determined.  The  hope  of  the  hour 
is  the  growth  of  scientific  study  of  industry,  and  the  defini- 
tion of  principles  of  efficiency  by  which  standards  can  be 
fixed  and  true  measurements  of  individual  output  can  be 
made  as  a  basis  for  the  just  apportionment  of  individual 
reward. 

So  far,  while  capital  remains  in  the  position  of  control, 
the  Laborer  has  been  most  energetic  among  the  other  ele- 


212  SOCIAL  UNREST 

ments  demanding  larger  recognition.  For  this  there  are 
many  reasons.  His  concreteness  as  a  definite  and  well  rec- 
ognized factor  in  production  cost;  his  progress  in  organiza- 
tion and  cumulative  use  of  his  influence;  his  vehemence  in 
the  double  role  of  producer  demanding  a  larger  share,  and 
consumer  struggling  against  the  pressure  of  increased  cost; 
his  elemental  resort  to  physical  force  in  support  of  his  argu- 
ment —  all  these  have  given  him  a  greater  prominence,  pos- 
sibly, than  his  actual  value,  proportionate  to  some  of  the 
other  factors,  might  justify. 

At  all  events,  every  investigation  of  industrial  phenomena 
comes  quickly,  if  not  immediately,  to  the  Laborer.  He  is  the 
central  point  of  some,  and  an  important  factor  in  all,  of  the 
modern  philosophies  of  management  which  seek  to  meet  the 
conditions  consequent  on  "  big  business." 

It  is  deplorable  that  organized  labor  has  so  generally  mis- 
understood and  resisted  all  efforts  at  correct  measurement, 
by  which  alone  a  just  scale  for  division  of  profits  can  be 
established  —  by  which,  indeed,  just  division  would  ulti- 
mately be  compelled,  not  only  as  between  one  worker  and 
another,  but  as  between  all  workers  and  all  employers. 
Nevertheless,  some  advance  has  been  made.  It  is  the  pur- 
pose of  this  article  to  sketch  the  several  theories  or  policies 
of  management  which  have  so  far  gained  recognition,  to 
place  them  in  contrast,  and  to  discover  their  common  rela- 
tion, if  any,  to  the  underlying  idea  and  theme  of  this  series. 

During  the  now  celebrated  rate  hearings  before  the  In- 


THE  EFFICIENCY  OF  LABOR  213 

terstate  Commerce  Commission  in  Washington,  held  in 
November,  1910,  it  was  testified  that  the  introduction  of 
what  was  then  for  the  first  time  named  "  Scientific  Man- 
agement "  had  changed  the  fortunes  of  a  certain  Philadel- 
phia machine  manufacturing  works  from  bankruptcy  to 
prosperity.  Seventy  men  were  comfortably  and  success- 
fully producing  two  to  three  times  as  much  as  had  been 
turned  out  under  the  old  methods  by  one  hundred  and  five 
men.  They  did  not  work  any  harder  than  before,  but 
worked  more  efficiently.  Their  wages  had  been  increased 
from  25  to  30  per  cent,  above  the  old  rates,  and  the  selling 
price  of  the  product  had  been  reduced  to  the  consumer  10  to 
15  per  cent,  below  the  figures  he  had  formerly  paid. 

To  the  initiated  there  was  nothing  new  in  this.  The 
philosophy  and  methods  followed  had  been  made  known  to 
industrial  audiences  years  before.  Only  the  name  attached 
to  the  system  and  the  dramatic  presentation  of  its  effects 
were  novel.  But  lest  the  instance  quoted  seem  to  the  public 
isolated  and  special,  case  after  case,  in  varied  industries, 
builds  up  the  record. 

In  a  textile  mill  in  New  Jersey,  the  experience  of  years 
preceding  and  succeeding  the  historic  date  mentioned,  proves 
an  increase  in  output  of  100  per  cent.,  a  reduction  in  manu- 
facturing cost  of  40  per  cent.,  and  an  increase  in  individual 
wage  earnings  varying  from  40  to  70  per  cent.  But  it  is 
no  process  of  mere  labor  driving.  "  The  workmen  distinctly 
improved  in  personal  appearance,  the  improvement  being  so 


214  SOCIAL  UNREST 

universal  and  so  marked  as  to  be  always  distinctly  recogniz- 
able. The  girls  invariably  acquired  a  better  color  and  im- 
proved in  health." 

Fresher,  simpler,  less  comprehensive  but  more  striking,  is 
the  testimony  of  a  letter  written  about  three  months  ago  by 
one  of  the  proprietors  of  a  typical  eastern  metal-working 
plant : 

I  am  very  much  of  an  enthusiast  as  to  the  efficiency  move- 
ment, for  the  reason  that  about  two  years  ago  I  took  up 
this  question  in  our  plant  and  have  succeeded  in  reducing 
our  expenses  at  the  rate  of  $150,000  a  year,  with  a  clerical 
force  very  much  reduced  instead  of  increased ;  and  as  a  re- 
sult of  the  initial  steps  in  this  efficiency  work,  I  can  see  my 
way  clear  within  the  next  year  to  reduce  expenses  $50,000 
more. 

Remarkable  statements  are  these;  for  they  are  not  ex- 
pressions of  hope,  estimates,  promises  of  counseling  en- 
gineers. They  are  reports  from  owners  and  operating  offi- 
cials, made  after  the  work  has  been  carried  out  and  tested 
in  practical  service,  proved  by  the  books  to  the  satisfaction 
of  the  men  who  are  paying  the  expenses  and  receiving  the 
profits.  And  these  gains  are  made  in  an  era  of  diminishing 
returns.  They  are  made  without  the  peculiar  economies 
incident  to  Big  Business,  by  which,  indeed,  Big  Business 
pleads  its  economic  justification. 

Are  the  principles  and  measures  compatible  with  the  phi- 
losophy of  Big  Business?  Can  the  active  factors  of  Big 
Business  and  of  the  scientific  pursuit  of  efficiency  be  co- 


THE  EFFICIENCY  OF  LABOR  215 

ordinated  so  as  to  accelerate  this  elimination  of  waste,  this 
enlargement  of  the  margin  of  accumulated  wealth,  upon 
which,  if  justly  distributed,  further  general  prosperity  may 
be  safely  and  happily  built? 

The  causes  of  the  gain  are  not  clouded  by  any  doubt  in 
the  minds  of  the  industrial  managers  making  these  reports. 
They  stand  vividly  distinct  and  brilliantly  illumined.  In 
every  case  the  result  followed  the  introduction  of  ideas  that 
differ,  not  in  degree,  but  in  order,  from  those  commonly 
embodied  in  industrial  practice.  The  managing  mind  or 
the  bodily  activity  was  not  merely  driven  harder  over  old 
paths  to  its  goal.  It  found  smooth  highways  toward  achieve- 
ment provided  for  it,  in  place  of  rough  trails  and  wagon 
tracks. 

In  every  case,  the  genius  that  brought  this  golden  treas- 
ure out  of  the  dull  storehouse  of  industry  in  which  others 
work  so  hard  for  so  much  scantier  gain,  was  a  genius  of 
looking  at  old  facts  in  a  new  way  —  of  applying  new  prin- 
ciples and  methods  to  the  accomplishment  of  a  long  familiar 
result.  It  was  like  in  kind  to  the  genius  that  made  trans- 
portation easier,  travel  swifter,  by  successive  steps  of  in- 
vention: first,  the  wheeled  cart  in  place  of  the  dragged  load 
or  trailing  poles ;  then  the  smooth  rail  in  place  of  the  rough 
road  for  the  wheel  to  run  on;  the  steam  or  oil  or  electric 
motor  in  place  of  the  draft  animal  to  propel  the  car.  Each 
step  kept  in  sight  and  was  inspired  by  the  same  ultimate 
purpose  —  to  move  a  vehicle  and  its  load  from  one  point  to 


216  SOCIAL  UNREST 

another.  But  each  new  increase  in  weight  moved  or  speed 
attained  was  gained  not  by  pushing  the  old  system  harder, 
but  by  introducing  a  new  way  or  "  order  "  of  working,  by 
which  more  useful  result  is  secured  for  the  same,  or  even  for 
less,  effort  expended. 

This  same  sort  of  improvement  which  inventive  minds, 
working  through  centuries,  have  effected  in  conducting  trans- 
portation, the  newer  doctrine  and  practice  of  efficiency  in 
operation  and  scientific  management  apply  to  the  conduct  of 
industry  at  large.  It  is  more  subtle,  because  it  deals  in  part 
with  things  such  as  systems,  customs,  standards,  ideals, 
which  are  not  directly  visible  as  the  machine  is ;  but  it  is  like 
in  kind.  It  progresses  not  by  speeding  up  the  old  way  but 
by  finding  and  using  new,  swifter  and  easier  ways. 

Thus  far  a  single  explanation  may  apply  to  all  the  cases 
cited  and  be  accepted  as  a  general  introduction  by  all  parties 
and  schools.  But  we  are  likely,  at  the  next  stage  of  our 
inquiry,  to  be  confused  by  the  very  abundance  of  the  reve- 
lation that  follows,  and  bewildered  by  the  multitude  of  the 
prophets  all  prophesying  together  with  a  very  loud  voice. 
The  listener  is  tempted  to  borrow  Paul's  exhortation  to  the 
Corinthians:  "  If  any  man  speak  in  an  unknown  tongue, 
let  it  be  by  two,  or  at  the  most  by  three,  and  that  by  course ; 
and  let  one  interpret."  In  plainer  prose,  there  are  so  many 
who  announce  themselves  as  apostles  or  disciples  of  scientific 
management,  so  many  who  offer  to  apply  it  practically,  and 


THE  EFFICIENCY  OF  LABOR  217 

their  definitions  and  doings  are  so  diverse,  that  the  skeptic 
(or  even  the  convert)  may  well  be  confused  and  grope  and 
stumble  in  trying  to  find  the  common  faith  underlying  so 
many  creeds. 

Out  of  the  very  welter  of  argument  and  Babel  of  voices, 
a  contemplative  student,  however,  may  separate  four  main 
systems  of  thought  and  practice.  One  is  old-school,  the 
school  of  coercion  and  strenuousness,  represented  by  the  age- 
long institutions  of  day  wage  and  piece  rates.  The  second 
is  transitional,  represented  by  the  philosophy  of  initiative 
and  incentive,  as  expressed  in  the  gainsharing  or  premium 
systems  of  Halsey,  Rowan,  Ross,  and  others.  The  third 
and  fourth  are  modern  —  the  philosophy  of  scientific  man- 
agement and  efficiency,  taught  by  Taylor,  Gantt,  Emerson; 
and  the  philosophy  of  "  suggestion,"  embodied  in  the  Hine 
"  unit  organization  "  or  the  Carpenter  "  committee  system  " 
of  management.  Profit  sharing  and  co-operative  stock  dis- 
tribution, so  far  as  they  are  philosophic,  belong  to  this  last 
school  of  suggestion;  that  is,  of  establishing  new  mental  re- 
lations between  the  worker  and  his  work  —  of  giving  him 
a  new  point  of  view  by  which  its  effort,  its  purpose,  and  its 
result  appear  in  a  more  clearly  illumined  perspective. 

The  old  methods  of  hire  and  service  were  not  without 
their  fine  points.  In  simpler  days,  when  the  relation  was 
personal,  the  sense  of  mutual  responsibility  was  sometimes 
strong,  the  discipline  often  heroic.  But  with  the  growth  of 


218  SOCIAL  UNREST 

the  manufacturing  system,  something  was  lost;  and  its  loss 
has  changed  the  whole  complexion  of  the  matter.  What  it 
was,  the  purpose  of  this  analysis  is  to  discover. 

The  newer  doctrines  and  their  disciples  seem  at  first  glance 
to  differ  widely  among  themselves,  because  they  differ  so  in 
"  ritual "  —  that  is,  in  the  established  institutions,  acts,  sys- 
tematized practice,  forms,  and  names  of  things  used  to  ex- 
press and  enforce  their  ideas.  What  if  it  should  prove 
nevertheless  that  they  all  have  the  common  quality  of  re- 
storing in  some  degree  this  missing  factor  —  this  factor  that 
present-day  manufacturing  methods  have  suppressed  and 
canceled  out? 

The  introduction  of  power  and  machinery  exaggerated 
enormously  three  great  tendencies  which  have  now  become 
dominant  in  the  manufacturing  system.  One  is  centraliza- 
tion —  the  gathering  of  workers  about  great  reservoirs  in- 
stead of  their  distribution  among  many  little  springs  of 
power,  of  equipment,  of  capital.  Another,  naturally  fol- 
lowing, is  standardization  —  the  reduction  of  wares  of  all 
kinds  to  fixed  forms,  prepared  by  comparatively  few  skilled 
designers,  which  forms  the  great  body  the  rank  and  file 
reproduce  mechanically.  The  third  is  specialization,  or  the 
subdivision  of  the  making  of  any  article  into  a  multitude  of 
operations,  committed  each  to  different  hands,  so  that  the 
share  of  any  individual  worker  is  endless  repetition  of  a 
closely  limited  task. 

Man  and  thing  manufactured  lose,  as  it  were,  individual- 


THE  EFFICIENCY  OF  LABOR  219 

ity  when  they  enter  the  plant,  and  regain  it  again  only  when 
they  emerge.  Man  and  job,1  their  identity  minimized,  are 
merged  into  the  group,  the  class,  the  system.  And  under 
the  old  order  of  day  wages,  with  the  relations  between  task 
and  time,  between  time  and  output,  between  man  and  em- 
ployer, thus  obscured,  the  knowledge  of  what  constitutes  a 
"  fair  day's  work  "  becomes  confused,  progressively  wanes. 
Standards  of  measurement  are  lost.  Vague  averages  take 
the  place  of  personal  records;  and  these  averages,  under  the 
law  of  the  crowd,  tend  always  toward  the  pace  of  the  slow- 
est. Incentive  to  individual  efficiency  dwindles,  disappears. 
Incentive  to  class  strengthening,  class  prejudice,  increases. 
Collective  bargaining  takes  the  place  of  individual  contract. 
Coercion  becomes  a  governing  principle,  solidified  labor  seek- 
ing to  drive  the  wage  up  and  the  output  down,  solidified 
employment  working  for  the  contrary  result. 

Piece  rates,  under  which  each  worker  is  paid  according  to 
output,  seemed  to  afford  a  better  way.  But  being  generally 
set  with  insufficient  knowledge  and  care,  and  cut  (or  in  the 
euphemism  of  the  shop,  "  readjusted  ")  whenever  the  work- 
er's earnings  have  risen  far  above  the  ruling  rate  for  his 
class,  these  rates  in  turn  fall  under  the  rule  of  collective 
bargaining  as  to  the  piece  prices  set,  and  under  tacit,  if  not 
open,  coercive  class  regulation  as  to  the  maximum  output  or 
the  number  of  pieces  any  worker  may  make.  So  conditions 

1  The  word  "  job  "  seems  somewhat  lacking  in  dignity,  but  there 
is  no  equivalent.  It  means  the  unit  task  covered  by  a  single  order 
given  to  the  workman. 


220  SOCIAL  UNREST 

soon  pass  again  under  the  rule  of  coercion  and  strenuousness, 
maximum  effort  for  a  very  moderate  result. 

Such  is  the  old  order,  constituting  so  large  a  part  of  the 
industrial  system,  that  it  influences  the  whole.  The  voices 
of  those  who  have  been  so  steeped  in  it  that  they  are  unable 
to  sense  any  other,  are  still  far  the  loudest  or  the  most  multi- 
tudinous in  their  crying  among  the  four  groups  above  differ- 
entiated. 

Enormous  economies  resulted  from  this  manufacturing 
system.  As  a  whole,  it  has  been  so  effective  that  any  retro- 
gression within  it  was  lost  to  sight  in  the  great  forward 
sweep.  Nevertheless,  retrograde  movements  came  into  be- 
ing; and  one  of  them  is  a  decline  in  individual  efficiency. 
The  worker  with  the  new  equipment  provided  may  produce 
absolutely  much  more  than  his  predecessor  did,  and  yet  pro- 
duce relatively  less,  as  shown  by  comparing  what  he  now 
does  with  the  achievement  that  would  be  reached  if  he  used 
the  new  machinery  and  methods  with  the  old-time  energy 
and  skill.  For  example:  modern  machinery  may  enable  an 
operator  to  turn  out  ten  times  as  much  as  the  same  effort 
would  produce  with  the  hand-tools  formerly  used.  If  he 
turns  out  six  times  as  much,  he  is  only  60  per  cent,  as  effi- 
cient, though  he  may  seem  six  times  as  effective  as  the  ante- 
cedent hand-worker. 

Next  in  number  stand  those  who  adopt  the  second,  or 
"  transitional,"  theory  of  "initiative  and  incentive";  of  ac- 
cepting the  ruling  wage,  the  ruling  rate  or  pace  of  working, 


THE  EFFICIENCY  OF  LABOR  22! 

without  contest,  but  of  offering  (as  a  purely  voluntary  mat- 
ter on  both  sides)  extra  compensation  to  the  worker  who  ex- 
ceeds the  average  pace.  Here  is  seen  the  first  glimpse  of 
that  great  common  factor  of  all  the  newer  and  more  hopeful 
doctrines  —  a  factor  which  at  the  end  we  may  discover  in  a 
new  light  and  under  an  unexpected  interpretation. 

Practically,  these  "  premium  "  systems  2  of  incentive  are 
simple  in  introduction  and  in  administration.  Day  wages, 
as  already  said,  are  undisturbed.  But  "  standard  times  " 
for  operations  or  jobs  are  set  by  observing  good  average 
performance  under  fair  average  conditions.  Individual  time 
records  for  each  worker  are  then  kept.  The  wage  value  of 
any  time  saved  by  any  worker  or  on  any  job  (determined,  of 
course,  by  comparing  his  actual  time  on  this  job  with  the 
standard  time  set  for  it)  is  then  divided  between  him  and 
his  employer.  Premium  earnings  are  kept  separate  from 
regular  wage  earnings.  Their  acceptance  or  rejection  by 
the  employee  is  optional  with  himself;  but  rejection,  even  if 
insisted  upon  at  first  through  suspicion  or  devotion  to  sup- 
posed class  interests,  is  rarely  persisted  in. 

The  plan  is  so  conciliatory,  so  devoid  of  cause  of  offense, 
or  of  creation  of  any  issue,  that  it  appeals  to  many  who 
shrink  from  going  any  farther.  Certain  defects  of  opera- 
tion it  has  which  it  is  not  pertinent  to  take  up  here.  The 
organic  defect  is  that  as  the  initiative  rests  with  the  worker, 
it  cannot  operate  beyond  methods  of  betterment  that  are 

2  The  Premium  Plan  of  Paying  for  Labor,  F.  A.  Halsey:  Trans- 
actions American  Society  of  Mechanical  Engineers,  June,  1891. 


222  SOCIAL  UNREST 

within  his  knowledge  or  improvement  of  conditions  that  are 
under  his  control.  Inefficiencies  of  plant  arrangement, 
equipment,  operation,  assignment  of  work,  methods  pre- 
scribed, supplies  and  tools  furnished,  and  many  others  (often 
together  constituting  far  the  largest  influence  on  total  effi- 
ciency) are  only  remotely  and  feebly  affected. 

Nevertheless,  here  we  have  the  germ  of  the  great  idea  — 
Separate  consideration  of  every  job,  separate  observation  of 
every  man;  standards  and  records  —  the  beginnings  of  res- 
toration of  individuality. 

In  the  third  cult,  "  Scientific  Management,"  as  it  has  been 
lately  called,  a  vast  extension  of  view  appears.3  Betterment 
of  performance  no  longer  depends  upon  the  thought,  the 
special  skill,  the  personal  effort,  of  the  worker.  Scientific 
study,  pursued  by  the  ablest  special  talent  obtainable,  is 
made  not  merely  of  the  work  as  it  is  carried  on,  but  as  it 
might  be  .better  carried  on;  of  improvements  in  materials,  in 
methods  and  appliances,  in  machinery  and  equipment,  in 
power  generation  and  applications,  in  arrangement  of  the 
plant,  in  routing  and  dispatching  work  through  the  plant,  in 
personnel  and  organization  under  which  the  plant  is  oper- 
ated. 

The  management  assumes  a  fully  equal  share  of  respon- 
sibility and  service,  in  helping  the  men  to  work  harmoniously, 
effectively,  wholly  on  productive  labor,  and  not  at  all  in 
heavy  and  unprofitable  toil  of  overcoming  removable  ob- 

8  "Shop  Management,"  F.  W.  Taylor;  "Scientific  Management." 
Ibid.:  Harper  &  Bros.;  McGraw-Hill  Book  Co. 


THE  EFFICIENCY  OF  LABOR  223 

stacles.  For  each  man's  work  and  for  the  operation  of  the 
factory  as  a  whole,  the  process  is  like  that  of  smoothing 
out  the  bends  and  removing  the  constrictions  and  obstruc- 
tions in  a  pipe  line.  Things  may  be  torn  up  and  disturbed 
during  the  process;  but  when  the  changes  are  complete,  the 
internal  friction,  the  whirls  and  eddies,  the  bursting  strains, 
all  are  relieved.  The  flow  becomes  swifter,  the  delivery- 
larger,  though  the  driving  pressure  be  not  a  whit  increased. 
While  the  several  apostles  of  scientific  management  agree 
closely  on  the  primary  faith,  they  differ  widely  in  the  ar- 
ticles of  their  creeds.  The  Taylor  system  is  both  scientific 
and  systematic.  It  holds  to  certain  fixed  institutions  which 
have  proved  effective,  and  insists  upon  their  general  accept- 
ance and  adoption.  It  demands  complete  devotion  and  the 
use  of  an  "  orthodox  "  ritual.  It  changes  the  very  form  of 
organization,  replacing  the  long-familiar  direct  line  of  au- 
thority and  office  by  its  eight  "  functional  foremen,"  each 
workman  having  eight  actual  and  five  visible  "  bosses." 
Emerson,4  leaving  the  old  line  intact,  supplements  it  by 
"staff"  counsel.  Both  Emerson  and  Gantt  (though  Gantt 
adopts  the  "  functional  "  rather  than  the  "  staff  "  idea)  are 
inclined  to  be  more  liberal,  more  elastic,  more  adaptive  —  to 
use  institutions  that  exist,  molding  conditions  and  opera- 
tions so  as  to  fulfil  as  well  as  possible  the  ends  they  are  con- 
vinced are  fundamentally  important.  They  proceed,  to  ex- 

*"  Efficiency  as  a  Basis  for  Operation  and  Wages,"  Harrington 
Emerson;  "The  Twelve  Principles  of  Efficiency,"  Ibid.:  The  En- 
gineering Magazine  Co. 


224  SOCIAL  UNREST 

aggerate  the  figure,  somewhat  as  the  Church  fathers  did  when 
they  invested  heathen  festivals  or  superstitions  with  new 
meaning  and  influence. 

In  psychology,  also,  as  expressed  in  the  incentive  of  reward 
offered  the  worker,  these  masters  differ,  though  by  a  different 
division.  Under  the  Taylor  and  Gantt  methods,  after 
conditions  have  been  standardized,  a  standard  task  (usually 
a  daily  task)  is  set.  A  relatively  large  "  bonus,"  lying  gen- 
erally between  20  per  cent,  and  50  per  cent,  of  the  regular 
day  wages  (which  are  undisturbed  and  remain  as  a  minimum 
to  every  worker),  is  given  to  the  man  who  accomplishes  the 
standard  task,  with  a  proportionate  increase  if  he  exceeds 
that  task.  Unless  he  actually  reaches  the  task  limit,  how- 
ever, he  gets  day  wages  only;  though  for  special  encourage- 
ment, or  to  compensate  for  accidental  interference,  the  bonus 
may  be  granted  in  some  particular  case  by  special  interven- 
tion. 

Emerson,  on  the  other  hand,  having  set  standard  times 
under  the  standardized  conditions,  and  having  likewise  ac- 
cepted ruling  day  wages  as  the  basis  of  agreement  and  min- 
imum of  compensation,  keeps  records  of  individual  perform- 
ance over  an  extended  bonus  period,  usually  a  month.  Each 
man's  efficiency  is  determined  by  the  proportion  between  his 
actual  achievement  in  that  period,  and  the  standard  prede- 
termined achievement.  If  he  reaches  the  standard,  if,  in 
other  words,  his  efficiency  is  100  per  cent.,  he  gets  as  bonus 
an  addition  of  20  per  cent,  to  his  wages  for  the  period. 


THE  EFFICIENCY  OF  LABOR     ,        225 

But  if  the  worker  shows  even  67  per  cent,  efficiency,  he  be- 
gins to  receive  a  small  bonus,  rising  on  a  sliding  scale  at  an 
increasing  rate  of  acceleration  as  the  man's  efficiency  im- 
proves, until  it  reaches  the  20  per  cent,  already  mentioned 
for  a  performance  100  per  cent,  efficient.  Above  that  the 
bonus  rises  steadily,  i  per  cent,  more  for  each  I  per  cent, 
additional  efficiency. 

We  thus  have  here  something  of  the  same  nebulous  zone 
between  low  performance  and  high  performance,  something 
of  the  same  almost  insensible  transition  between  the  status 
of  the  under-competent  and  that  of  the  fully  competent,  that 
we  have  under  the  premium  plans.  A  slight  but  increasing 
reward  is  expected  to  lead  the  reluctant  step  by  step,  even 
if  he  cannot  jump.  The  effort  is  to  raise,  in  some  measure, 
the  efficiency  of  the  whole  body  of  labor. 

Under  the  Taylor  and  Gantt 5  systems,  on  the  other  hand, 
there  is  no  such  twilight  region.  The  line  between  no-bonus 
and  bonus-earning  is  abrupt  and  emphatic.  It  is  not  an  in- 
clined plane,  but  a  vertical  step.  Added  emphasis,  even,  is 
sought  and  encouraged  by  fostering  social  distinctions  based 
on  bonus  earnings.  The  tendency  is  selective  —  to  segregate 
from  the  mass  of  available  labor  the  individuals  who  are 
"  standard "  for  the  particular  work  in  hand,  distributing 
the  others  to  other  occupations  for  which  they  may  be  bet- 
ter fitted.  The  premium  plan  repudiates  the  task  idea. 
The  Emerson  efficiency  doctrine  ameliorates  it.  The  Taylor 

5  "Work,  Wages  and  Profits,"  H.  L.  Gantt:  The  Engineering 
Magazine  Co. 


226  SOCIAL  UNREST 

differential  and  Gantt  bonus  policies  emphasize  it.  Psycho- 
logically, these  differences  are  highly  important. 

Nevertheless,  beyond  the  differences  is  one  underlying 
idea  becoming  clearer.  Knowledge  of  the  work,  of  each 
workman,  is  now  supplemented  by  intimate,  exhaustive 
knowledge  of  machines,  processes,  conditions,  duties  not  only 
of  employees  but  of  officials,  management,  organization. 
The  searching  light  of  scientific  inquiry  beats  upon  every 
part  of  the  entire  undertaking.  Systematic  records  gather 
into  a  widely  accessible  treasury  many  private  funds  of 
knowledge  formerly  scattered  in  perhaps  obscure  and  silent 
private  stores. 

Lastly,  we  come  to  the  fourth  school,  the  school  of  sug- 
gestion. It  is  the  most  difficult  to  present  adequately,  be- 
cause its  expression  in  practice  is  not  only  accomplished  with 
relatively  slight  physical  elements,  but  also  varies  widely 
because  different  practitioners  use  different  sorts  of  psychi- 
cal appeal.  Indeed,  it  is  only  fair  to  the  authors  of  the 
ideas  grouped  here  under  this  definition  to  assume  the  whole 
responsibility  for  that  definition,  and  to  relieve  them  of 
any  criticism  that  may  fall  upon  this  interpretation  of  their 
active  influence. 

Perhaps  the  best  mode  of  exhibiting  the  theories  in  ques- 
tion will  be  by  brief  examples: 

Under  the  Hine  unit  system,6  then,  the  operating  organi- 

6  "Modern  Organization,"  Charles  DeLano  Hine:  The  Engineer- 
ing Magazine  Co.  < 


THE  EFFICIENCY  OF  LABOR  227 

zation  of  a  railway,  instead  of  consisting  of  a  general  super- 
intendent, a  superintendent  of  motive  power,  a  chief  engi- 
neer, a  superintendent  of  transportation,  a  general  store- 
keeper, and  a  superintendent  of  telegraph,  etc.,  consists  of  a 
group  of  "  assistant  general  managers."  "  The  number  may 
vary  with  the  size  of  the  jurisdiction,  but  is  normally  eight, 
including  the  man  previously  the  assistant  general  manager, 
who,  to  avoid  misunderstanding,  is  reappointed  as  the  senior, 
or  number  one  on  the  new  list."  Similarly,  in  each  division 
of  the  railway,  the  titles  master  mechanic,  division  engineer, 
train  master,  traveling  engineer,  and  chief  dispatcher,  dis- 
appear; and  in  their  place  are  substituted  a  group  of  as- 
sistant superintendents,  varying  from  one  on  a  very  small 
division  to  twelve  on  a  very  large  division,  but  normally  six, 
again,  "  including  the  man  previously  the  assistant  superin- 
tendent, who,  to  avoid  misunderstanding,  is  reappointed  as 
the  senior,  or  number  one  on  the  new  list."  "  No  distinct 
grade  of  senior  or  chief  assistant  is  created  in  any  unit." 
Normally,  number  one,  the  real  senior,  is  "  on  the  lid,"  as 
it  is  termed,  at  headquarters,  and  is  excused  from  outside 
road  duties. 

Functions,  of  course,  are  specialized;  but  the  change  of 
title  carries  with  it  insensibly  a  changed  vision  of  responsi- 
bility. It  is  no  longer  for  the  selfish  interest  of  a  depart- 
ment, but  for  the  total  efficiency  of  the  road  or  the  division. 
The  old-time  difficulty  of  getting  officials  to  interest  them- 
selves along  broader  lines  of  activity  gradually  disappears. 


228  SOCIAL  UNREST 

No  importations  of  enthusiasts,  no  infusion  of  fresh  blood, 
is  made,  but  "  the  good  old  wheel  horses  show  their  ability 
to  move  somewhat  faster  when  the  way  is  made  easier; 
when  the  ruts  of  narrowing  specialties  and  the  hurdles  of 
departmental  prejudices  have  been  removed."  While  there 
are  collateral  changes  in  office  administration  and  depart- 
mental routine,  the  essence  of  the  idea  is  the  alteration  of 
conduct  and  attitude  by  a  change  in  mental  outlook. 

Under  the  Carpenter  system  7  (which  applies  character- 
istically to  industrial  operations,  as  the  Hine  unit  organiza- 
tion does  to  railway  operation)  great  emphasis  first  is  laid 
upon  a  committee  system,  by  which  officials  responsible  for 
the  prosecution  of  the  work  are  brought  into  frequent  meet- 
ings to  report  upon  existing  conditions  and  to  furnish  esti- 
mates or  to  commit  themselves  to  agreement  as  to  what 
can  be  accomplished  in  the  immediate  future.  Second,  an 
immediate  record  is  made  of  these  reports  and  undertakings, 
usually  on  a  blackboard,  so  that  the  official  goes  down  in 
black  and  white  before  his  fellows,  and  knows  that  the 
record  will  confront  him  at  the  next  meeting.  Third,  this 
system  of  conference  and  consultation,  with  some  attendant 
emulation,  is  carried  down  even  to  assistant  foremen  and  job 
bosses.  Fourth,  a  system  of  individual  reward  by  a  slight 
increase  of  wages  or  small  promotion  is  used  to  encourage 
and  distinguish  the  man  who  strives  for  and  attains  more 
than  ordinary  efficiency. 

7  "  Profit-Making  Management  in  Shop  and  Factory,"  C.  V.  Car- 
penter: The  Engineering  Magazine  Co. 


THE  EFFICIENCY  OF  LABOR  229 

Here  is  another  proposal  for  breaking  down  blind  walls 
about  the  individual  provinces,  and  widening  the  horizon, 
even  of  the  minor  official. 

Gilbreth's  philosophy 8  has  been  developed  and  applied 
chiefly  in  connection  with  building  and  general  contracting. 
His  best-known  work  has  been  in  the  simplification  of  opera- 
tions by  very  skilful  and  very  interesting  eliminations  of 
traditional  but  needless  waste  of  effort  or  method. 

One  example  often  quoted  (as  all  classics  are)  is  taken 
from  the  operations  of  bricklaying.  The  work  is  far  older 
than  the  Egyptian  bondage  —  older  than  the  Tower  of 
Babel.  It  might  be  expected  to  profit  by  everything  that 
mere  practice  could  supply.  But  the  motions  of  handling 
brick,  mortar,  trowel,  the  line,  were  studied  and  much  sim- 
plified. Bricks  and  mortar  were  supplied  in  the  most  con- 
venient arrangement  in  the  most  convenient  position.  The 
bricklayer  no  longer  has  to  stoop,  lifting  180  pounds  of  his 
own  body  with  every  nine  pounds  of  brick.  He  no  longer 
had  to  toss  every  brick,  testing  it  for  top  and  bottom.  All 
brick  were  brought  to  him  proper  face  up,  in  convenient 
packets. 

The  scaffolding,  by  simple  mechanical  means,  was  kept 
constantly  at  the  most  convenient  height.  The  bricklayer, 
by  easy  movements,  transferred  brick  on  a  short  horizontal 
path  from  packet  to  wall.  He  did  not  toil  so  hard  as  be- 

8  "Motion  Study,"  Frank  B.  Gilbreth:  D.  Van  Nostrand  Co. 
"  Field  System,  Brick-Laying  System":  Ibid.:  Myron  C.  Clark  Pub- 
lishing Co. 


230  SOCIAL  UNREST 

fore,  but  his  work  was  all  bricklaying,  not  mere  lifting  and 
juggling  of  weights.  His  day's  accomplishment,  with  less 
physical  tax,  rose  from  1000  bricks  to  2700. 

So  far  Gilbreth's  practice  is  strictly  scientific.  But  pass- 
ing beyond  that  into  the  school  of  suggestion,  his  practice  is 
characterized  by  four  major  principles.  First,  the  separa- 
tion of  the  work  so  that,  as  far  as  can  possibly  be  managed, 
each  man  works  separately  and  individually  —  that  is,  so 
that  his  separate  individual  performance  can  be  distinguished 
and  measured.  Second,  constant  observation  by  a  sufficient 
force  of  timekeepers  to  record  individual  performance  from 
hour  to  hour.  Third,  conspicuous  and  immediate  posting 
of  these  records  so  that  comparison  between  man  and  man, 
or,  if  unavoidable,  between  gang  and  gang,  can  be  made 
every  shift,  if  not  indeed  every  hour.  Fourth,  reward  of 
some  kind  (and  experience  shows  that  it  may  be  of  the  most 
varied  kind,  substantial  or  sentimental,  so  long  as  it  is  posi- 
tive and  conspicuous)  for  the  best  performance  or  perform- 
ers, and  admonition  for  the  poorest. 

Individual  records,  continuously  taken,  openly  posted. 
Here  is  an  elemental  practice  that  the  most  elemental  man 
can  grasp  —  to  which  the  simplest  intelligence  responds  by 
some  of  its  simplest  emotions.  Have  we  at  the  end  come 
upon  an  element  common  to  all  these  complex  philosophies? 
Has  our  pursuit  of  the  underlying  idea  brought  us,  more  by 
natural  course  than  prepared  design,  to  discover  that  great 
common  divisor? 


THE  EFFICIENCY  OF  LABOR  231 

Standard  times  and  individual  time  measurements;  scien- 
tific planning  and  written  instructions  for  every  job;  per- 
manent records,  and  separately  measured  rewards  for  vary- 
ing personal  efficiency;  elevation  of  the  departmental  official 
to  a  plane  of  general  outlook  and  survey  of  his  work  as  re- 
lated to  that  of  his  fellows;  committee  meetings  with  open 
debate  and  conference  and  posted  minutes  —  what  is  the 
essence  of  all  these  but  light,  more  light?  Shadows  of  for- 
getfulness  and  ignorance,  secrecy  in  which  man  or  task  may 
lag  or  lurk  unobserved,  are  flooded  with  illuminative  study. 
Task  and  man  are  brought  up  to  the  clear  horizon  of  ob- 
servation and  knowledge.  That  which  was  hidden  is  re- 
vealed, and  that  which  is  revealed  is  made  patent  to  all. 
The  true  basis  for  fixing  the  share  in  the  victory  and  the 
just  claim  on  the  spoils  is  established. 

The  great  common  divisor  of  all  the  methods  (not  the 
entirety  of  any  one,  but  an  imposing  factor  of  all,  whether 
they  be  incentive,  scientific,  or  suggestive)  is  discovery,  illu- 
mination, definition  and  dissemination  of  knowledge  —  the 
open,  accessible  declaration  of  all  material  facts  affecting 
any  transaction,  for  the  information  and  guidance  of  all 
whose  interests  are  involved  therein. 

Using  the  term,  not  in  its  lower  and  narrower  meaning, 
but  in  the  highest  and  finest  sense  that  can  be  given  it,  the 
universal  factor  —  the  great  common  divisor  —  of  all  the 
new  philosophies  by  which  industrial  efficiency  is  increased 
is  —  Publicity. 


XIX 

CAPITAL  SUBMITS  TWELVE 
LABOR  PROPOSALS  1 

The  Capital  Group  of  the  Industrial  Commission  in  ses- 
sion at  Washington,  October,  1919. 

Production. —  There  should  be  no  intentional  restriction 
of  productive  effort  or  output  by  either  the  employer  or  the 
employes  to  create  an  artificial  scarcity  of  the  product  or  of 
labor  in  order  to  increase  prices  or  wages. 

The  Establishment  as  a  Productive  Unit. —  The  estab- 
lishment rather  than  the  industry  as  a  whole  or  any  branch 
of  it  should,  as  far  as  practicable,  be  considered  as  the  unit 
of  production  and  of  mutual  interest  on  the  part  of  em- 
ployer and  employe.  Each  establishment  should  develop  con- 
tact and  full  opportunity  for  interchange  of  views  between 
management  and  men,  through  individual  or  collective  deal- 
ings, or  a  combination  of  both. 

Conditions  of  Work. —  It  is  the  duty  of  management  to 
make  certain  that  the  conditions  under  which  work  is  carried 
on  are  as  safe  and  as  satisfactory  to  the  workers  as  the  na- 
ture of  the  business  reasonably  permits.  Every  effort  should 

1  Though  the  Commission  was  not  long  in  session,  these  pro- 
posals have  more  than  temporary  significance. 

233 


234  SOCIAL  UNREST 

be  made  to  maintain  steady  employment  of  the  workers  both 
on  their  account  and  to  increase  efficiency. 

Wages. —  The  worker  should  receive  a  wage  sufficient 
to  maintain  him  and  his  family  at  a  standard  of  living  that 
should  be  satisfactory  to  a  right  minded  man  in  view  of  the 
prevailing  cost  of  living.  Women  doing  work  equal  with 
that  of  men  under  the  same  conditions  should  receive  the 
same  rates  of  pay  and  be  accorded  the  same  opportunities  for 
training  and  advancement. 

Hours  of  Work. —  The  standard  of  the  work  schedule 
should  be  the  week,  varying  as  the  peculiar  requirements  of 
individual  industries  may  demand.  Overtime  should,  as  far 
as  possible,  be  avoided,  and  one  day  of  rest  in  seven  should 
be  provided. 

Settlement  of  Disputes. —  Each  establishment  should  pro- 
vide adequate  means  for  the  discussion  of  all  questions  and 
the  just  and  prompt  settlement  of  all  disputes,  but  there 
should  be  no  improper  limitation  or  impairment  of  the  exer- 
cise by  the  management  of  its  essential  function  of  judg- 
ment and  direction. 

Right  to  Associate. —  The  association  of  men,  whether  of 
employers,  employes  or  others,  for  collective  action  or  deal- 
ing confers  no  authority  and  involves  no  right  of  compulsion 
over  those  who  do  not  desire  to  act  or  deal  with  them  as  an 
association.  Arbitrary  use  of  such  collective  power  to  coerce 
or  control  others  without  their  consent  is  an  infringement 


CAPITAL  SUBMITS  TWELVE  PROPOSALS      235 

of  personal  liberty  and  a  menace  to  the  institutions  of  a  free 
people. 

Responsibility  of  Associations. —  Every  association, 
whether  of  employers  or  employes,  must  be  equally  subject 
to  public  authority  and  legally  answerable  for  its  own  con- 
duct or  that  of  its  agents. 

Freedom  of  Contract. —  With  the  right  to  associate  recog- 
nized the  fundamental  principle  of  individual  freedom  de- 
mands that  every  person  must  be  free  to  engage  in  any  law- 
ful occupation  or  enter  into  any  lawful  contract  as  an  em- 
ployer or  an  employe  and  be  secure  in  the  continuity  and 
rewards  of  his  effort. 

The  Open  Shop. —  The  principles  of  individual  liberty 
and  freedom  of  contract  upon  which  our  institutions  are 
fundamentally  based  require  that  there  should  be  no  inter- 
ference with  the  "  open  shop."  While  fair  argument  and 
persuasion  are  permissible,  coercive  methods  aimed  at  turning 
the  "  open  shop  "  into  "  closed  union  shop  "  or  "  closed  non- 
union shop"  should  not  be  tolerated.  No  employer  should 
be  required  to  deal  with  men  or  groups  of  men  who  are  not 
his  employes  or  chosen  by  and  from  among  them. 

The  Right  to  Strike  or  Lockout. —  In  the  statement  of  the 
principle  that  should  govern  as  to  the  right  to  strike  or  lock- 
out a  sharp  distinction  should  be  drawn  between  the  em- 
ployment relations  in  the  field  (a)  of  the  private  industry, 
(b)  of  the  public  utility  service  and  (c)  of  government  em- 
ployment, federal,  State  or  municipal. 


236  SOCIAL  UNREST 

In  private  industry  the  strike  or  the  lockout  is  to  be  de- 
plored; but  the  right  to  strike  or  lockout  should  not  be 
denied  as  an  ultimate  resort  after  all  possible  means  of  ad- 
justment have  been  exhausted.  Both  employers  and  em- 
ployes should  recognize  the  seriousness  of  such  action  and 
should  be  held  to  a  high  responsibility  for  the  same.  The 
sympathetic  strike  is  indefensible,  anti-social  and  immoral. 
The  same  may  be  said  of  the  blacklist,  the  boycott  and  also 
of  the  sympathetic  lockout. 

In  public  utility  service  the  public  interest  and  welfare 
must  be  the  paramount  and  controlling  consideration.  The 
State  should,  therefore,  impose  such  regulations  as  will  as- 
sure continuous  operation,  at  the  same  time  providing  ade- 
quate means  for  the  prompt  hearing  and  adjustment  of  com- 
plaints and  disputes. 

A  strike  of  government  employes  is  an  attempt  to  prevent 
the  operation  of  government  until  the  demands  of  such  em- 
ployes are  granted,  and  cannot  be  tolerated.  The  right  of 
government  employes  to  be  heard  and  to  secure  redress  should 
be  amply  safeguarded. 

Training. —  Practical  plans  should  be  inaugurated  in  in- 
dustry and  outside  of  it  for  the  training  and  upgrading  of 
industrial  workers,  their  proper  placement  in  industry,  the 
adoption  and  adaptation  of  apprenticeship  systems,  the  ex- 
tension of  vocational  education  and  such  other  adjustments 
of  our  educational  system  to  the  needs  of  industry  as  will 
prepare  the  workers  for  more  effective  and  profitable  service 
to  society  and  to  himself. 


XX 
THE  REAL  LABOR  PROBLEM  * 

NICHOLAS  MURRAY  BUTLER 

If  we  abandon  our  fondness  for  abstractions  and  look  at 
any  industrial  process  just  as  it  is  we  quickly  discover  that 
it  is  an  enterprise  in  human  cooperation,  and  that  in  it  there 
may  be  and  usually  are  three  different  kinds  or  sorts  of  co- 
operating human  beings  —  those  who  work  with  their  hands, 
those  who  work  with  their  brains  and  those  who  work  with 
their  savings.  These  are  all  alike  essential  to  productive  in- 
dustry, and  production  is  the  joint  enterprise  in  which  all 
are  engaged  in  common.  In  the  case  of  the  steel  industry, 
for  instance,  a  skilled  employe  in  a  rolling  mill  who  has 
bought  some  of  the  stock  of  the  United  States  Steel  Corpora- 
tion represents  in  his  own  person  all  three  kinds  of  cooperat- 
ing influence.  He  works  alike  with  his  hands,  with  his 
brains  and  with  his  savings.  This  is  an  almost  ideal  condi- 
tion, and  one  which  we  should  strive  to  make  just  as  uni- 
versal as  possible.  If  industry,  then,  whether  it  be  the  min- 
ing of  coal,  or  the  transportation  of  freight,  or  the  cutting 
and  sawing  and  trimming  of  timber,  or  the  packing  of  sal- 
mon, or  the  manufacture  of  paper  from  woodpulp,  or  the 

1  An    address    delivered    October,    1919,    before   the    Institute    of 
Arts  and  Sciences. 

237 


238  SOCIAL  UNREST 

spinning,  dyeing,  weaving  and  printing  of  cotton,  is  truly  an 
enterprise  in  cooperative  production,  it  follows  that  every 
cooperating  agency  is  directly  interested  both  in  the  quantity 
and  the  quality  of  the  product. 

When  this  point  has  been  made  clear  and  industry  is 
viewed  as  a  cooperative  enterprise  in  production,  then  it 
follows  that  those  who  work  with  their  hands,  like  those 
who  work  with  their  brains  and  those  who  work  with  their 
savings,  are  entitled  to  take  part  in  the  organization  and 
direction  of  the  industry  and  to  have  a  voice  in  determining 
the  conditions  under  which  their  cooperation  shall  be  given 
and  continued. 

The  policy  of  reasonableness  will  carry  us  a  step  further. 
The  industry  so  conceived  and  so  organized  will  have  to 
sell  its  product  at  a  price  that  will  enable  it  to  pay  to  those 
who  work  with  their  hands  a  thoroughly  satisfactory  wage, 
to  those  who  work  with  their  brains  an  approximate  salary 
and  to  those  who  work  with  their  savings  a  definite  minimum 
return  based  upon  the  current  value  of  money.  As  the 
wages  and  the  salaries  must  be  paid  in  any  event,  it  is  in- 
terest or  dividends  upon  savings  which  must  bear  the  brunt 
of  any  shortage  in  net  income.  The  cost  of  depreciation 
and  replacement  is  also  to  be  met.  When  all  these  have 
been  provided  for  whatever  remains  is  profit.  Reasonable- 
ness indicates  that  this  profit  should  not  go  to  one  group 
alone  of  the  three  who  cooperate  in  production,  but  should 
be  apportioned  between  all  three  groups  in  accordance  with 


THE  REAL  LABOR  PROBLEM  239 

a  plan  drawn  to  meet  the  facts  of  a  given  industry.  If,  on 
the  other  hand,  there  be  a  loss  instead  of  a  profit,  or  a  de- 
ficiency in  the  amount  needed  to  meet  all  of  the  items  just 
stated,  the  amount  of  that  deficiency  is  met,  as  matters  now 
stand,  by  those  who  work  with  their  savings  alone. 

There  is  merit  in  the  suggestion  that  a  given  industry 
should,  in  years  of  prosperity,  establish  an  undistributed 
reserve  fund  against  which  should  be  charged  any  losses  that 
might  subsequently  be  incurred.  It  is  impossible,  however, 
to  cover  all  contingencies  by  one  formula.  It  would  appear 
to  be  a  complete  justification  of  the  method  of  reasonable- 
ness if  industry  be  viewed  as  an  enterprise  in  cooperative  pro- 
duction; if  the  three  cooperating  agencies  be  all  recognized 
and  treated  as  human  beings  and  not  as  abstractions;  if  the 
reward  of  each  of  these  agencies  be  seen  to  be  derived  from 
the  product  and  from  it  alone;  and  if  the  joint  and  codpera- 
tive  interest  in  a  common  product  be  maintained  and  in- 
creased by  giving  to  representatives  of  each  of  these  ele- 
ments a  direct  share  in  the  conduct  and  control  of  the  in- 
dustry and  its  policies. 

A  system  of  industrial  organization  such  as  this  is  not 
only  entirely  compatible  with  our  American  principles  of 
government  and  of  life,  but  it  is  nothing  more  than  a  decent 
application  of  those  principles  to  modern  industry.  There 
would  be  no  "  wage  slavery  "  under  such  a  plan. 

The  rule  of  reasonableness  in  the  field  of  industry  will 
probably  no  more  certainly  supplant  entirely  the  rule  of 


24o  SOCIAL  UNREST 

force  than  will  be  the  case  in  the  field  of  international  re- 
lations; but,  as  in  the  case  of  international  relations,  the 
habit  of  reasonableness  will  more  or  less  speedily  supplant 
the  habit  of  force.  Until  the  millennium  comes  and  until 
selfishness  and  greed  disappear  from  the  world  there  will 
be  no  frictionless  industrial  machinery.  All  that  can  be 
hoped  for  is  to  apply  the  methods  of  reasonableness  and  to 
support  those  methods  by  good  will,  by  sympathy  and  by 
kindly  criticism  of  happenings  as  they  occur.  This  way  lie 
peace,  progress  and  the  preservation  of  American  institutions 
and  ideals. 

If,  however,  we  are  not  to  use  or  are  not  to  be  permitted 
to  use  the  methods  of  reasonableness  in  dealing  with  these 
problems,  then  we  must  be  prepared  for  the  use  of  force. 
This  alternative  is  shocking.  It  would  mean  nothing  less 
than  the  substitution  of  anarchy  for  order,  of  physical  power 
for  justice  and  of  a  perpetual  struggle  between  changing 
and  conflicting  interests  for  the  calm  and  temperate  dis- 
cussion of  principles.  It  would  almost  certainly  involve  the 
destruction  of  the  individual's  moral  right  to  own  property, 
which  right  is  itself  an  attribute  of  liberty  and  an  essential 
condition  of  social  and  political  progress. 

Recently  the  startling  doctrine  has  been  taught  and  prac- 
tised that  the  strike  may  be  used  to  enforce  the  views  and 
wishes  of  a  small  minority  of  the  population  in  matters 
relating  not  only  to  public  transportation  and  to  other  public 
utilities,  but  to  political  and  public  acts  of  every  sort.  This 


THE  REAL  LABOR  PROBLEM      241 

is  to  call  back  the  Liberum  Veto  of  ancient  Poland  with  a 
vengeance.  According  to  this  doctrine,  a  group  of  individ- 
uals who  do  not  approve  of  the  tariff  levied  on  wool  may 
unite  to  make  impossible  the  operation  of  a  steamer  which 
carries  a  cargo  of  wool  from  Argentina  to  the  United  States, 
or  to  prevent  the  unloading  of  such  cargo  when  the  steamer 
reaches  the  docks  of  New  York.  The  government  of  the 
United  States  may  deem  it  necessary  to  send  troops  and  to 
ship  munitions  to  Siberia,  but  under  this  doctrine  stevedores 
and  longshoremen  at  the  ports  of  San  Francisco  and  of 
Seattle  would  be  entirely  justified  in  refusing  to  load  or  to 
permit  to  be  loaded  the  vessels  which  were  to  carry  such 
troops  and  munitions  in  case  they  as  individuals  should  hap- 
pen to  disapprove  of  the  government's  policy  in  this  regard. 
Still  others  might  say  that  they  would  refuse  to  assist  in 
operating  the  railways  of  the  United  States,  and  would  unite 
to  prevent  their  being  operated  by  others,  unless  a  certain 
designated  public  policy  in  regard  to  railway  ownership  and 
operation  were  quickly  adopted. 

It  must  be  apparent  from  these  illustrations  that  without 
complete  loyalty  to  the  democratic  principle,  without  respect 
for  law,  without  sincere  devotion  to  American  ideals  of  gov- 
ernment, and  without  good  will  on  the  part  of  all  elements 
and  groups  of  society,  the  economic  and  political  life  of  the 
nation  can  no  longer  go  forward,  and  that  we  are  in  im- 
minent danger  of  national  shipwreck  and  of  incalculable 
disaster. 


XXI 

COMPETITION  AS  A  SAFE- 
GUARD TO  NATIONAL 
WELFARE  J 

TALCOTT  WILLIAMS 

We  need  to  remember  and  as  constantly  forget  that  free 
competition,  like  personal  freedom,  is  the  last  child  of  prom- 
ise and  of  the  constitutional  covenant  born  to  organized 
society.  Civilization  and  a  very  high  civilization  may  exist 
without  free  competition,  free  contract  or  personal  freedom. 
It  may  exist  where  these  are  the  portion  for  but  the  few,  as 
in  a  Hellenic  city  state.  But  free  competition,  free  contract 
and  personal  freedom  for  all  men  is  the  last  gift  of  high 
civilization.  This  has  only  existed  for  a  century  in  Eng- 
land. It  is  just  half  a  century  old  in  this  country,  and  be- 
gan with  the  abolition  of  human  slavery.  The  real  issue, 
threatened  on  the  one  side  by  the  directing  forces  of  capital 
who  seek  to  continue  monopoly  and  privilege  through  the 
trust,  and  threatened  on  the  other  by  the  laboring  forces  of 
society  through  trades  unions,  without  violence  in  the  Amer- 
ican Federation  of  Labor  and  with  violence  in  the  Industrial 

1  Address  before  American  Academy  of  Political  and  Social  Sci- 
ence.    See  Annals,  July,  1912,  pp.  74-82. 

243 


244  SOCIAL  UNREST 

Worker  of  the  World,  is  whether  these  three  precious  gifts 
of  slow  time  and  a  long  martyr  roll  shall  be  preserved  in  the 
industrial  development  of  society  now  before  us,  or  destroyed 
entirely  by  these  two  agencies.  Capital  seeks  monopoly  at 
the  cost  of  free  competition,  free  contract  and  the  personal 
freedom  and  equality  of  choice  and  use  in  any  trade,  trans- 
portation, production  or  manufacture,  because  the  directing 
minds  of  the  capitalized  industrial  forces  of  society  honestly 
believe  that  their  complete  and  efficient  development  is  only 
possible  at  the  sacrifice  of  free  competition.  The  directing 
minds  of  labor,  aided  by  all  economic  students  who  have 
acquired  or  inherited  the  college  settlement  type  of  mind, — 
most  useful  in  modern  society  but  more  interested  in  the  dis- 
tribution of  the  product  than  in  efficient  production, —  as 
honestly  believe  that  a  larger  and  adequate  share  in  the  prod- 
yet  of  the  joint  effort  of  capital  and  labor  can  only  be  se- 
cured through  the  frank  surrender,  by  the  individual,  of 
free  contract,  free  competition  and  the  personal  freedom  of 
a  free  choice  of  any  pursuit  or  labor,  for  which  a  man  is 
fitted  on  even  terms  with  every  other  man. 

Trust  and  union  are  equally  honest  in  their  claim.  It  is 
an  error  to  think  that  those  who  manage  trusts  are  seeking 
solely  the  wealth  which  they  will  obtain.  Every  able  man  in 
this  field  is  interested  as  much  in  accomplishing  great  things 
as  in  amassing  a  great  fortune  and  his  conviction  is  that  free 
competition,  free  contract  and  complete  personal  liberty  in 
all  commercial  relations  cannot  be  permitted  without  injury 


COMPETITION  AS  A  SAFEGUARD         245 

to  industrial  development.  The  trades  union  and  its  lead- 
ers alike  believe,  as  John  Mitchell  said  nine  years  ago  to  the 
anthracite  miners,  that  it  has  ceased  to  be  possible  for  men 
to  rise,  that  a  stratified  organization  of  society  must  be  ac- 
cepted and  that  those  on  a  particular  level  of  ability  must 
be  satisfied  to  take  less  than  they  could  earn  under  a  system 
of  free  competition  and  free  contract,  in  order  that  the  aver- 
age may  be  raised  for  those  who  are  less  able,  less  industrious 
and  less  efficient.  Both  these  new  economic  forces,  the  trust 
and  the  union,  will  endure  and  do  great  good,  but  neither 
can  be  allowed  to  limit  free  competition,  free  contract  and 
personal  freedom. 

This  proposal  to  sacrifice  these  rights  to  industrial  devel- 
opment on  the  one  side,  and  to  a  higher  average  wage,  on 
the  other,  is  the  more  easily  made  because  these  rights  are 
recent,  not  yet  part  of  the  common  consciousness  of  society. 
Under  mediaeval  conditions  free  competition  did  not  and 
could  not  exist.  When  land  transportation  is  carried  on  by 
sumpter-mules,  moving  at  three  miles  an  hour  on  a  dirt 
road,  burdened  with  the  cost  of  a  guard  against  highway 
robbers,  each  city  is  an  independent  economic  integer.  When 
famine  comes,  it  is  not  possible,  under  these  conditions,  to 
carry  grain  to  save  the  starving  a  distance  of  over  one  hun- 
dred and  fifty  or  two  hundred  miles.  Today,  in  the  East, 
in  places  which  are  separated  by  these  intervals,  plenty  may 
exist  in  one  tract  and  starvation  unto  death  in  another. 
The  mediaeval  city  was  an  economic  world  to  itself.  Within 


246  SOCIAL  UNREST 

its  limits  the  guild  jealously  guarded  a  monopoly  of  each 
particular  mechanic  art  and  the  members  of  the  guild,  en- 
joying "  the  freedom  "  of  a  particular  trade,  were  able  to 
exclude  wholly  anyone  else  from  joining  it.  The  denial  of 
the  personal  freedom  of  the  choice  of  any  trade  wholly  cut 
off  free  competition,  free  contract  and  the  personal  free- 
dom of  the  individual.  This  endured  in  France  until  it 
was  ended  by  the  Revolution.  It  existed  over  Europe  until 
it  was  ended  by  statutes  passed  at  various  dates  between  the 
opening  of  the  nineteenth  century  and  the  organization  of 
modern  states,  the  last  of  them  in  Germany,  Austria-Hun- 
gary and  Italy.  Over  great  tracts  of  Russia  and  nearly  all 
of  Asia  general  competition  between  regions  in  trade,  prod- 
ucts and  supplies  is  limited  to  the  wares  and  articles  used 
by  the  few.  Except  on  the  sea  coast  and  as  foreign  wares 
penetrate  the  interior,  the  free  competition  which  cheap 
transportation,  free  to  all,  has  introduced  into  the  modern 
economic  world  does  not  and  cannot  exist.  As  every  one 
knows,  caste  in  India  is  primarily  an  economic  and  industrial 
and  not  a  religious  division  of  society.  Nearly  all  the  castes 
are,  historically,  comparatively  recent.  When  population 
began  to  impinge  on  food,  free  competition,  in  the  supply  of 
food,  which  the  triple  expansion  engine  and  the  modern  rail- 
road have  brought,  was  wholly  absent.  In  each  congested 
village  and  city  population  in  India  where  no  one  had  ever 
known  free  competition  and  free  contract,  it  was  easy  to 
seam  and  divide  society  by  groups  which  excluded  all  other 


COMPETITION  AS  A  SAFEGUARD         247 

men  from  the  particular  vocation  which  each  selected,  which 
guarded  their  civil  right  by  religious  rites,  under  a  primi- 
tive faith,  which  turned  in  worship  to  whatever  had  power, 
and,  as  this  organization  became  hereditary,  there  gradually 
grew  that  mingled  product  of  industrial  conditions,  of  an- 
cestral employment,  of  religious  sanction  and  of  social  sepa- 
ration which  constitutes  the  Hindu  caste.  The  like  appears 
in  our  own  day.  The  law  under  which  a  commission  of 
anthracite  miners  decide  who  shall  become  an  anthracite 
miner  and  suspend  the  operation  of  examining  and  certify- 
ing to  new  miners,  whenever  a  strike  comes,  is  the  first  step 
to  an  anthracite  miners'  caste.  The  trades  unions,  familiar 
in  every  city,  to  which  it  is  difficult  to  secure  an  election  for 
any  but  the  sons  of  members,  the  kin  of  those  in  whom  they 
are  interested,  are  another  nascent  step  towards  the  denial, 
in  the  trade  which  they  control  of  free  competition,  free  con- 
tract and  personal  freedom  of  the  choice  of  vocation  for  each 
man,  without  any  test  or  bar,  except  such  as  the  law  itself 
may  impose,  open  to  all  to  prove  proficiency  by  examination. 
The  regime  of  free  competition,  free  contract  and  per- 
sonal freedom,  which  is  constantly  treated  in  all  discussions 
of  this  sort  as  immemorial,  is,  in  fact,  the  recent  product  of 
civil  liberty,  cheap  transportation  and  the  rapid  increase  of 
product  under  the  factory  system.  But  for  free  transporta- 
tion the  factory  would  not  have  grown  beyond  the  product 
of  what  wyould  satisfy  the  region  which  it  served.  In  the 
Knight  sugar  cases  the  government  sought  to  show  that  the 


248  SOCIAL  UNREST 

sugar  melted  could  not  be  consumed  ill  the  territory  imme- 
diately around  the  factory,  and  the  court  refused  to  consider 
such  testimony,  but,  as  a  matter  of  fact,  except  for  the  rail- 
road the  sugar  refinery  of  today,  like  the  refinery  of  the 
early  part  of  the  eighteenth  century  when  sugar  was  still  a 
luxury,  would  be  forced  to  limit  itself  to  a  small  region  and 
the  area  around,  which  could  be  reached  under  primitive 
methods  of  transportation.  Civil  rights  carried  with  them 
free  competition,  free  contract  and  the  personal  freedom  of 
choice.  The  railroad  and  steamship  opened  the  market, 
the  latter  first  by  sea,  the  former  later  on  land,  and  the 
growth  of  the  factory  system  brought  a  new  competition  be- 
fore unknown,  over  an  entire  continent.  This  has  grown 
so  familiar  in  an  age  when  the  product  of  a  single  pottery  in 
Staffordshire  may  be  found  on  the  shop  shelves  of  the  civil- 
ized world,  that  it  is  difficult  for  us  to  recollect  that  in  lands 
still  under  primitive  conditions  and  in  all  lands,  as  the  col- 
lector well  knows  and  is  still  the  case  in  China,  the  methods, 
the  shapes,  the  patterns,  the  decoration,  the  colors  and  the 
character  of  the  ceramic  wares  of  a  country  change  wholly 
with  every  few  miles,  so  that  each  region  feels  little  or  no 
stress  of  competition  from  another. 

As  capital  developed  the  factory  system  and  as  labor  grew 
in  organization,  both  these  factors  have  sought  to  limit  free 
competition  and  free  contract.  Cheap  transportation  had 
created  free  competition,  and  the  most  deadly  assault  on  its 
development  and  extension  was  carried  out  by  rebates  on 


COMPETITION  AS  A  SAFEGUARD         249 

railroad  rates  and  special  contracts  on  steamship  lines,  such 
as  the  House  of  Lords  approved  in  the  Mogul  Steamship 
case  twenty-three  years  ago,  both  of  which  have  built  up 
monopolies  in  trade,  restricting  competition  in  this  country 
and  in  England.  By  an  instinct  as  unerring  as  always  at- 
tends the  exercise  of  an  economic  appetite  for  larger  profits, 
the  precise  cause  which  had  created  the  reign  of  free  com- 
petition was  the  one  first  attacked.  In  the  same  way  as 
the  abolition  of  guilds,  the  abrogation  of  industrial  privilege 
and  the  opening  of  all  pursuits  and  all  trades  to  all  men 
had  created  a  general  advance  for  labor,  so  labor  laid  its 
hand  first  on  the  old  weapon  of  the  guild,  in  order  to  create 
special  economic  groups  which  could  protect  themselves 
against  competition. 

Nowhere  was  the  opening  of  cheap  transportation  more 
complete  or  the  abolition  of  free  industrial  privilege  more 
sweeping  than  in  the  United  States,  and  nowhere  else  has 
there  been  a  more  complete  development  of  free  competition, 
free  contract  and  personal  freedom.  To  this  cause  and  to 
this  more  than  any  other  must  be  attributed  the  amazing  in- 
dustrial advance  of  the  United  States.  This  is  constantly 
laid  to  great  resources,  but  these  resources  exist  everywhere: 
coal,  iron,  fertile  fields  and  all  the  illimitable  products  of 
the  soil,  the  waters  and  the  empire  under  the  earth  are 
present  in  many  lands,  but  it  is  only  here  that  over  an  entire 
continent  just  courts  have  enforced  the  free  privilege  of  con- 
tract. Nowhere  else  has  the  embodied  contract,  a  corpora- 
tion, been  given  wider  privileges,  nowhere  else  has  the  com- 


250  SOCIAL  UNREST 

petition  created  by  cheap  transportation  been  more  complete, 
and  nowhere  else,  be  it  remembered,  has  the  determination 
to  preserve  this  competition  against  the  encroachments  of 
capital  or  of  labor  been  more  constant,  more  continuous  or 
more  successful. 

The  weapons  lie  close  at  hand.  Exactly  as  the  common 
law  through  centuries  had  created  a  protection  for  the  per- 
sonal freedom  of  the  citizen,  which  was  at  last  embodied  in 
the  habeas  corpus  act,  an  enactment  which  only  put  into 
statutory  form  what  was  already  the  common  law  of  the 
land,  so  the  common  law  protection  of  free  contract  and 
free  competition,  which  had  been  the  common  law  of  the 
land,  was  embodied  in  the  Sherman  anti-trust  act.  Exactly 
as  the  powers  which  the  King's  Bench  had  originally  exer- 
cised, in  order  to  protect  the  citizen  against  the  encroach- 
ment of  the  donjon  keep  and  baron  and  all  the  special  rights 
which  permitted  imprisonment,  without  due  process  of  law, 
were  disregarded  by  royal  judges  when  the  Crown  sought 
to  extend  arbitrary  powers,  so  the  free  industrial  systems 
built  up  by  free  contract  and  free  competition  after  they 
grew  great  and  extended  into  combinations  sought  first  to 
encroach  upon  and  then  to  destroy  the  very  regime  by  which 
they  had  grown  both  profitable  and  beneficent.  The  same 
freedom  of  association  for  all  men,  which  had  been  thrown 
wide  open  when  guilds  and  the  special  privileges  of  trade 
associations  were  destroyed  by  statute  and  far-reaching  deci- 
sions in  England  and  in  this  country,  was  employed  by  labor 


COMPETITION  AS  A  SAFEGUARD         251 

to  forge  anew  the  fetters  from  which  the  industry,  the 
energy  and  the  efficiency  of  the  individual  had  been  un- 
loosed. 

No  one  has  profited  more  by  this  freedom  than  labor  it- 
self. It  is  not  only  that  wages  are  higher  in  this  country, 
so  that  allowing  for  every  difference  in  price  the  purchasing 
power  of  wages  is,  as  an  English  department  has  recently 
ascertained,  nearly  one  and  a  half  times  greater  than  it  is  in 
England,  and  the  share  in  the  results  of  every  industrial  en- 
terprise divided  between  capital  and  labor  is  far  greater  for 
labor  than  for  capital  in  this  country,  as  compared  with 
Great  Britain.  Of  the  gross  earnings  of  our  railroad  sys- 
tems, nearly  one-half  go  to  labor  in  various  forms,  and  con* 
siderably  less  than  one-third  of  the  return  on  capital  in 
dividends  and  in  interest.  In  England  the  share  given  to 
capital,  instead  of  being  one-third  that  paid  out  in  wages,  is 
actually  larger.  This  same  proportion  follows  through  the 
entire  industrial  system  of  Great  Britain  and  the  United 
States  in  our  factories  and  in  our  mines;  in  our  retail  stores 
and  in  all  our  agencies  of  distribution  the  same  broad  fact 
appears  and  the  share  of  every  hundred  dollars  paid  out  in 
wages  and  paid  out  in  the  return  on  capital  is  relatively  far 
greater  in  this  country  for  wages  than  it  is  on  capital.  Free 
competition  has  done  more  to  accomplish  this  than  any  other 
cause.  The  capital  employed  in  American  railroads,  taking 
as  a  measure  the  par  value  of  shares  and  bonds,  reaches 
$17,000,000,000  on  223,000  miles,  taking  1908  as  the  year 


252  SOCIAL  UNREST 

of  comparison.  In  the  United  Kingdom  the  total  capital  is 
about  $6,500,000,000.  This  disparity,  roughly  expressed  by 
an  average  capital  per  mile  in  the  United  States  of  $75,000 
per  mile  and  in  England  of  $300,000  per  mile  is,  as  we  are 
all  perfectly  well  aware,  by  no  means  a  measure  of  the  rela- 
tive expenditure  of  capital  on  both  systems.  In  England 
the  general  practice  has  been  to  carry  to  the  capital  account 
all  expenditures  which  added  permanent  improvements,  and, 
in  many  cases,  new  equipment.  In  the  English  railroad 
practice,  as  in  the  English  practice  in  municipal  enterprises 
and  in  manufacturing,  no  adequate  depreciation  account  is 
carried.  The  English  railroad  system  is  still  vainly  en- 
deavoring to  pay  interest  on  the  cost  of  engines  long  since 
scrapped  and  rails  long  since  replaced.  Were  the  accounts 
of  a  system  like  the  Pennsylvania  Railroad  to  be  rewritten 
upon  English  lines,  its  capital  expenditure  per  mile  of  line 
would  be  greatly  increased.  Free  competition  in  this  coun- 
try has  brought  a  pressure  on  every  enterprise  which  has 
made  the  scrap  heap  an  economic  asset  of  the  first  magnitude 
in  the  development  of  the  country.  As  far  as  possible,  addi- 
tions are  carried  in  maintenance  accounts,  capital  is  restricted, 
and  much  that  would  be  accepted  as  capital  expenditure  and 
a  profit  jealously  sought  upon  it  in  England  has  here  gone 
to  the  national  scrap  heap.  The  pressure  of  free  competi- 
tion has  forced  this  practice. 

In  England,  on  the  other  side,  the  railroad  system,  from 
the  start,  has  been  closely  interlinked,  because,  under  the 


COMPETITION  AS  A  SAFEGUARD         253 

English  railroad  system,  the  capital  of  the  country,  very 
largely  centered  in  a  few  hands,  has  constantly  labored  for 
the  preservation  of  the  capital  rather  than  for  the  efficiency 
of  the  line.  When  we  speak  of  free  competition  we  are  not 
alone  narrowing  ourselves  to  the  limited  economic  outlook, 
we  are  remembering  also  the  free  social  competition  which 
makes  all  careers  open,  which  does  not,  as  in  England,  feel 
that  a  railroad  board  of  direction  commands  a  greater  public 
confidence  because  it  has  on  it  members  of  the  group  of 
ruling  families  which  has,  through  generations  enjoyed 
through  rank,  privilege,  and  in  many  cases,  inherited  ability 
of  a  high  order,  a  practical  monopoly.  There  are  great 
families  in  England,  like  the  Cecils,  wise  enough  to  enter 
early  on  the  railroad  system,  who  have  had  a  weight  in 
railroad  management  as  great  as  that  in  affairs  and  have 
exerted  themselves  in  both  instances  for  the  conservative 
protection  of  the  profits  of  capital.  The  system  of  which 
they  were  a  part  relieved  them  from  the  free  competition 
which  pulses  like  an  electric  current  through  the  whole 
American  railroad  system,  in  which  the  new  man  is  per- 
petually, decade  by  decade,  appearing  and  revolutionizing 
all  that  has  gone  before,  scrapping  in  his  operations,  shares, 
bonds,  roadway,  equipment,  and  adding  a  new  increment  of 
efficiency,  not  only  to  the  lines  which  he  directs  and  con- 
trols, but  to  the  entire  transportation  of  the  country.  Such 
a  man  was  Harriman.  The  free  competition  of  a  continent 
made  his  career  possible. 


254  SOCIAL  UNREST 

The  practical  result  and  the  advantage  of  free  competi- 
tion might  be  rested  on  these  two  railroad  systems  alone. 
Under  the  widespread  habit  of  all  competing  for  the  ad- 
vantages of  competence,  due  to  a  universal  social  competi- 
tion, the  owners  of  the  American  railroad  system  number, 
as  nearly  as  can  be  ascertained,  1,000,000,  without  taking 
into  account  the  indirect  ownership  of  depositors  in  savings 
banks  and  the  holders  of  life  insurance.  The  total  number 
employed  on  American  railroads,  in  1908,  aggregated  1,436,- 
275.  The  number  employed  on  English  railroads  is  about 
700,000,  half  those  employed  in  this  country,  with  the  in- 
evitable result  of  wages  so  low  that  over  nine-tenths  of 
them  receive  only  one  pound  per  week.  The  total  yearly 
compensation  paid  in  the  United  States  to  all  railroad  em- 
ployees was  $1,035,000,000.  The  amount  paid  in  England 
in  wages  was  about  $180,000,000  for  the  same  year.  While 
the  number  of  American  employees  was  about  twice  that  in 
England,  the  total  sum  disbursed  in  wages  is  between  six 
and  seven  times  as  great.  The  capital  embraced  in  Amer- 
ican railroads,  earned  dividend  and  interest  in  all  shapes, 
$700,000,000.  The  amount  disbursed  in  England  for  the 
same  purpose  was  $206,000,000.  While  the  ratio  between 
the  wages  fund  in  both  countries  was  as  six  to  one,  the  ratio 
between  the  profits  of  capital  was  three  and  one-half  to  one. 

These  contrasts  could  be  carried  through  the  whole  sys- 
tem of  industry,  as  contrasted  between  England  and  Amer- 
ica, or  any  European  country  and  the  United  States  and 


COMPETITION  AS  A  SAFEGUARD        255 

through  all  of  them  there  would  be  found  similar  ratios 
of  a  larger  share  given  here  to  wages  and  lesser  share  given 
to  capital,  and  in  all  fields,  as  a  result  of  free  competition, 
a  higher  efficiency  of  labor  and  a  sharper  struggle  to  main- 
tain the  efficiency  of  capital  and  to  prevent  the  dead  hand 
of  the  past  from  reaching  into  the  profits  of  the  living  pres- 
ent. Maintain  free  competition  and  this  great  progress  can 
be  preserved  through  all  the  future.  Maintain  the  freedom 
of  transportation  and  equal  privileges  upon  it,  and  no  mat- 
ter how  great  the  combination  may  be,  it  will  be  true  of 
it,  as  it  has  been  true  of  the  Steel  Trust,  the  Rubber  Trust, 
the  Sugar  Trust  and  the  Woolen  Trust,  that  each  decade 
sees  them  control  a  smaller  fraction  of  the  industry  than 
at  the  beginning.  Break  up  by  the  unflinching  enforce- 
ment of  the  principles  in  the  "  Sherman  Act  "  any  combina- 
tion which  seeks  to  prevent  this  operation  of  free  competi- 
tion, and  the  same  process  will  go  on  in  every  industry. 
Through  twenty  years,  step  by  step,  the  judicial  power  of 
the  people,  that  great  arsenal  in  which,  from  the  early  days, 
wherein  the  King's  Writ  began  to  run  through  all  his  king- 
dom and  override  all  lesser  jurisdiction,  the  weapons  of 
freedom  and  free  competition  were  forged,  generation  by 
generation,  has  been  here  also  protecting  this  great  inher- 
itance. The  last  great  decisions  on  the  Standard  Oil  and 
the  Tobacco  Trust  are  destined  to  be  the  charter  of  free 
competition  to  the  American  people  through  all  their  fu- 
ture. The  general  principle  of  the  common  law  has  been 


256  SOCIAL  UNREST 

clear  from  the  beginning,  that  no  power  within  the  state 
was  permitted  to  have  a  possibility  of  interfering  with  the 
personal  freedom  of  the  subject,  and  these  decisions,  con- 
sciously and  unconsciously  applying  the  early  principle  which 
broke  into  every  castle  keep  and,  freed  from  ancient  prej- 
udice, the  restraints  laid  upon  personal  freedom  and  trade 
alike,  have  laid  down  the  principle  that  the  mere  fact  that 
a  corporation  had  the  power  to  interfere  with  competition 
was  sufficient  cause  for  its  dissolution.  Time  will  be  needed 
for  this  to  work  out  its  full  force  in  its  full  application. 
Exactly  as  the  reader  of  English  history  is  familiar  with  the 
pages  in  which  special  privileges,  here  and  there,  like  those 
of  the  City  of  London,  of  the  Palatinate  and  of  other  lesser 
jurisdictions  survived,  interfere  here  and  there,  as  Black- 
stone  notes  from  time  to  time  with  the  uniform  and  general 
jurisdiction  of  the  central  court  of  the  realm  and  royal 
sovereignty,  so  there  will  be  a  penumbral  season  in  which 
a  well-managed  trust  will  divide  up  into  fragments: 

Quinquaginta  atris  immanis  hiatibus  Hydra 
Saevior  intus  habet  sedem, 

which  Virgilian  line,  freely  translated,  means  that  the  hydra 
is  more  dangerous  than  ever  seated  within,  when  divided  into 
fifty  dark  and  formless  parts.  But  the  American  people, 
with  that  instinct  alike  for  self-rule  and  for  empire  which 
has  unconsciously  guided  them  through  a  century  and  a 
third,  often  blundering  as  to  means,  but  never  swerving  as 


COMPETITION  AS  A  SAFEGUARD         257 

to  ends,  is  determined  to  maintain  the  regime  of  free  com- 
petition at  all  hazards,  and  in  the  end  capital  struggles  in 
vain  to  secure  the  privileges  of  the  past,  and  labor,  which 
vainly  seeks  to  impose  upon  itself  the  old  chains  of  guild 
and  caste,  will  be  both  forced  by  a  sovereign  people  greater 
than  either,  to  accept  that  universal  rule  of  free  competition, 
free  contract  and  personal  freedom,  on  which  rests  alike  the 
safety  of  the  republic  and  the  prosperity  of  its  citizens. 


XXII 

THE  FIELD  BEFORE  THE 
COMMISSION  ON  INDUS- 
TRIAL RELATIONS  1 

PAUL  U.  KELLOGG 

On  the  last  day  of  the  year  191 1  a  group  of  social  workers 
and  university  men  presented  to  President  Taft  a  petition 
for  the  creation  of  a  federal  commission  of  inquiry.  They 
asked  for  a  body  "  with  as  great  scientific  competence,  staff, 
resources  and  power  to  compel  testimony  as  the  Interstate 
Commerce  Commission  "  to  investigate  the  field  of  relations 
between  employer  and  employee.  Among  the  topics  spe- 
cifically mentioned  for  investigation  were  the  organization 
and  methods  of  trade  unions  and  employers'  associations, 
strikes,  laws  and  judicial  decisions  relative  to  labor,  and 
constructive  "  schemes  of  economic  government,"  such  as 
the  "  trade  legislature  "  in  the  New  York  cloak  and  suit 
industry,  the  Canadian  industrial  disputes  legislation,  the 
Wisconsin  industrial  commission  and  the  Australian  mini- 
mum-wage acts. 

1This  article  published  in  The  Political  Science  Quarterly, 
December,  1913,  is  an  unusually  comprehensive  statement  of  indus- 
trial conditions  when  the  War  began  in  1914. 

25Q 


260  SOCIAL  UNREST 

Six  months'  agitation  resulted  in  the  passage  of  an  act  by 
Congress  approved  August  23,  1912,  providing  for  a  com- 
mission of  nine  members,  three  to  represent  employers  and 
three  to  represent  organized  labor.  The  duration  of  the 
commission  was  limited  to  three  years,  and  an  appropria- 
tion of  $100,000  was  made  for  the  expenses  of  the  first 
year.  The  commission  was  given  broad  powers  of  investi- 
gation into  general  labor  conditions,  conditions  of  associa- 
tion of  labor  and  capital,  problems  of  sanitation  and  safety, 
agencies  of  industrial  peace,  and  the  subject  of  Asiatic  im- 
migration. It  was  especially  charged  to  "  seek  to  discover 
the  underlying  causes  of  dissatisfaction  in  the  industrial 
situation  and  to  report  its  conclusions  thereon."  In  mid- 
September,  1913,  President  Wilson's  nominations  were  con- 
firmed by  the  senate,  and  in  October  the  commission  met 
and  organized  for  work. 

It  is  significant  that  the  impulse  which  resulted  in  the 
creation  of  this  commission  came  from  men  and  women  who 
belong  to  what  may  be  termed  the  third  party  to  the  in- 
dustrial struggle.  They  were  men  and  women,  to  be  sure, 
who  know  conditions  of  life  and  labor  at  first  hand ;  and 
many  of  them  had  been  instrumental  in  settling  industrial 
disputes.  Yet  after  all,  of  what  deep  concern  was  it  to 
them  that  employers  and  employees  are  recurrently  at  log- 
gerheads ?  What  concern  is  it  to  the  average  citizen  ? 

Let  us  look  at  the  situation  as  they  brought  it  forward, 
and  carried  conviction  in  Congress  that  the  work  ready 


BEFORE  THE  COMMISSION  261 

to  the  hand  of  such  a  federal  commission   reaches  to  the 
economic  bedrock  of  American  democracy. 

I 

Throughout  the  period  of  westward  expansion  the  home- 
stead laws  were  the  underpinnings  by  which  men  adjusted 
themselves  to  the  land,  as  the  basis  for  subsistence.  On 
them,  and  on  contractual  relations  which  smacked  of  the 
soil,  they  built  up  the  great  commonwealths  of  the  Missis- 
sippi Valley  and  beyond. 

With  the  development  of  manufacturing,  the  currents 
have  set  in  new  directions ;  cities  have  piled  up ;  the  people 
have  massed  in  great  trade  groups;  employments  embedded 
in  corporate  industry  have  become  the  basis  for  subsistence 
for  vaster  and  vaster  numbers  of  Americans.  On  the  con- 
tract of  hire  depends  their  prosperity. 

Now,  the  laws  and  customs  of  adjusting  rights  and  in- 
terests among  agricultural  peoples  have  been  the  develop- 
ment of  centuries.  They  have  become  moulded  in  forms 
conformable  to  democracy.  But  while  organic  social  changes 
have  come  in  with  modern  industry,  as  radical  as  the  change 
in  tools  from  wheelbarrows  to  electric  cranes,  the  terms 
of  the  contract  of  hire  have  not  been  reconsidered  in  rela- 
tion to  the  new  conditions. 

If  we  apply  to  the  farming  life  of  America  the  words 
equity,  tenure  and  security,  we  obtain  a  fairly  clear  idea  of 
the  economic  base  upon  which  households  and  granges,  coun- 


262  SOCIAL  UNREST 

ties  and  states,  have  been  built  up.  But  if  we  apply  the 
test  of  the  same  words  to  the  working  life  of  American  in- 
dustrial districts,  we  get  at  once  a  vivid  impression  of  the 
insecure  footing  of  our  wage-earners.  And  if  we  turn  to 
the  message  which  Abraham  Lincoln  sent  to  Congress  fifty 
years  ago  and  read  what  he  then  said  of  the  self-sufficient 
household  and  the  self-employing  man  as  the  sure  founda- 
tions upon  which  political  democracy  must  depend  to  with- 
stand the  encroachments  of  new  forms  of  despotism,  we 
appreciate  the  risks  to  our  institutions  which  industrial 
changes  have  thrust  into  the  national  life. 

Not  merely  the  sudden  massing  of  industrial  workers  but 
the  unevenness  in  the  size  and  strength  of  the  parties  to  the 
work  contract  puts  strains  upon  it.  Corporate  bargainers 
range  from  small  concerns,  which  retain  much  of  the  old 
personal  contact  between  master  and  man,  to  far-flung  en- 
terprises governed  by  wire,  which  have  injected  a  system 
of  absentee  capitalism  into  American  industrial  life  as  defi- 
nite in  its  effects  as  is  absentee  landlordism.  In  strength  of 
position  these  corporate  bargainers  range  from  the  isolated 
contractor,  whose  work  must  be  prosecuted  on  an  exposed 
corner  and  at  a  rate  of  speed  enforced  by  real-estate  owner 
and  prospective  tenant,  to  the  manufacturer  whose  walled 
plant  enables  him  to  store  up  finished  goods  to  tide  over  a 
strike.  They  range  from  associations  of  such  manufactur- 
ers, which  can  put  a  strike-breaking  force  into  the  plant  of 
any  member  and  break  the  back  of  a  local  strike  regardless 


BEFORE  THE  COMMISSION  263 

of  its  merits,  to  nationalized  industries,  which  can  effect  the 
same  end  by  closing  down  a  plant  here  and  operating  else- 
where. They  range  from  manufacturers,  who  view  organ- 
ized labor  as  nothing  more  than  a  disrupter  of  orderly  ad- 
ministration to  be  fought  at  every  turn,  to  manufacturers 
who  not  only  bargain  with  it,  but  look  to  it  to  aid  in  the 
discipline  of  unsteady  workers  or  to  settle  disputes  between 
crafts. 

There  is  equal  unevenness  in  the  ranks  of  labor.  The 
workers  range  from  those  in  sedentary  trades,  thick  with 
traditions,  to  those  in  new  and  hazardous  callings  like  that 
of  the  structural  iron  workers,  which  attract  foot-loose  men 
of  the  same  devil-may-care  stamp  as  did  our  frontier  settle- 
ments. They  range  from  old  employees,  indispensable  core 
of  an  industry,  to  the  machine  hands  of  the  loft  districts  of 
the  cities,  whose  employers  take  them  on  and  lay  them  off 
with  no  more  sense  of  responsibility  than  they  feel  when 
they  throw  the  switch  that  turns  on  their  electric  power. 
They  range  from  mass  organizations  which  embrace  every 
workers  in  an  industry  —  from  common  labor  up,  to  craft 
organizations  hedged  in  by  apprenticeships  from  competi- 
tion with  the  common  laborers ;  from  elemental,  unorganized 
bodies  of  men  who  strike  spontaneously  under  some  common 
spur,  as  at  McKees  Rocks  and  Lawrence,  to  highly  dis- 
ciplined orders,  like  the  railroad  brotherhoods,  whose  stages 
of  development  have  been  as  distinct  in  character,  ideals  and 
methods  as  are  those  of  thoroughly  organized  business  con- 


264  SOCIAL  UNREST 

cerns.  The  organizations  of  workers  range  from  isolated 
local  bodies  to  international  unions  with  staffs  of  paid  or- 
ganizers; from  irresponsible  associations  with  unitemized  ac- 
counts and  a  ring  control  which  matches  that  of  machine 
politics,  to  organizations  on  a  business  basis  with  large  bene- 
fit funds  and  responsible  executives. 

Leaving  out  of  consideration  what  have  been  called  the 
predatory  industrial  corporation  and  the  predatory  trade 
union,  we  have,  therefore,  a  great  diversity  in  the  relative 
strength  of  position  enjoyed  by  the  two  parties  to  the  labor 
contract.  In  the  middle  ground,  for  the  purposes  of  illus- 
tration, may  be  cited  the  brewery  trade,  in  which  strong 
unions,  local  and  international,  have  carried  on  long-headed 
negotiations  with  an  equally  strong  organization  of  employ- 
ers to  devise  trade  agreements  covering  not  only  the  cus- 
tomary subject-matters  of  hours,  wages  and  labor  conditions, 
but  the  creation  and  joint  management  of  a  fund  for  old- 
age  pensions,  accident  and  sickness  insurance.  At  one  ex- 
treme of  the  scale  is  the  Chicago  builder  who  has  to  deal 
with  thirty  different  city  trades  and  who  may  be  bankrupted 
because  his  operations  are  held  up  by  disputes  which  the 
unions  may  have  among  themselves.  At  the  other  extreme, 
the  Steel  Corporation,  with  a  half-billion  capitalization  and 
with  men  numbered  in  the  hundreds  of  thousands,  refuses 
to  bargain  with  even  two  men  acting  in  unison. 

The  presence  of  such  inequalities  between  the  two  parties 
to  the  labor  contract  is  sufficient  to  require  that  the  commis- 


BEFORE  THE  COMMISSION  265 

sion  give  fresh  scrutiny  to  that  contract  to  see  if  it  is  meet- 
ing the  stress  of  demands  which  it  was  not  devised  to  bear. 
Clearly,  also,  the  commission  should  consider  how  the  sov- 
ereign power  of  the  state,  greater  than  that  of  any  of  these 
parties,  may  be  thrown  over  the  transaction  so  that  sheer 
disparity  in  strength  between  the  contracting  parties  shall 
not  of  itself  occasion  social  wrong. 

In  the  absence  of  such  governmental  control,  the  parties 
to  the  labor  contract  have  themselves  sought  to  exercise  con- 
trol over  it  either  by  mutual  agreement  or  by  compulsion 
from  one  end  of  the  bargain  or  the  other.  Thus  we  have: 

The  closed  shop  —  closed  from  below  —  in  which  unions 
succeed  in  preventing  the  employment  of  any  but  their  own 
members  in  a  given  trade. 

The  preferential  shop,  in  which  the  employers  agree  to 
give  a  preference  to  union  labor  when  engaging  new  work- 
ers. 

The  open-shop,  in  which  union  and  non-union  men  are  on 
an  equal  footing  and  in  which  employees  are  treated  with 
singly  or  in  groups,  as  they  prefer. 

The  pseudo-open  shop,  in  which  the  labor  organization  is 
dislodged  or  rendered  feckless  by  a  process  of  discharge  or 
refusal  to  treat  with  the  men  collectively. 

The  closed  shop  —  closed  from  above  —  in  which  the  em- 
ployer discharges  men  who  attempt  to  act  collectively  or 
even  to  belong  to  unions,  and  in  which  the  workers  do  not 
so  much  bargain  as  simply  take  or  reject  what  is  offered. 


266  SOCIAL  UNREST 

Two  recent  developments  should  be  added.  The  tactics 
of  the  I.  W.  W.  may  be  regarded  as  evolved  out  of  the 
very  weaknesses  of  the  workers  in  the  last  named  position. 
The  appeal  of  this  organization  is  to  the  ranks  of  common 
labor,  the  glutted,  the  replaceable.  It  meets  the  flat  re- 
fusal of  the  employers  to  bargain  with  such  men  by  de- 
nouncing all  contracts  with  employers.  And  where,  against 
the  all  but  impossible  odds  of  police  repression  and  economic 
necessity  faced  by  such  workers,  they  fail  to  win,  the  I.  W. 
W.  counsels  reprisal,  after  return  to  work,  by  a  sabotage 
more  to  be  feared  than  the  strike  itself.  But  in  its  larger 
strategy  the  I.  W.  W.  preaches  an  industry  wide  open  at 
the  bottom,  an  industry  organized  as  a  whole,  an  industry 
working  out  its  common  salvation. 

The  protocol  plan  in  the  garment  trades  in  New  York, 
apparently  at  the  far  extreme  of  the  scale  from  the  tactics 
of  the  I.  W.  W.,  claims  the  same  strategy  for  its  own.  The 
one  is  avowedly  on  a  war  footing;  the  other  stands  for  or- 
ganized peace.  Under  the  protocols,  now  in  vogue  in  sev- 
eral trades,  we  have  the  beginnings  of  economic  self-govern- 
ment within  each  industrial  group :  grievance  boards,  through 
which  in  one  trade  representatives  of  1,200  employers  and 
70,000  employees  adjust  the  trouble  in  a  particular  shop; 
sanitary  boards,  which  deal  with  questions  of  hygiene,  light- 
ing, ventilation  and  fire  escapes  more  rigorously  than  does 
the  state  department  of  labor,  and  call  a  strike  if  necessary 


BEFORE  THE  COMMISSION  267 

to  enforce  their  decrees;  standard  wage  boards  which  are 
beginning  the  scientific  study  of  rate-making. 

If  the  commission  will  make  a  comparative  study  of  the 
situation  of  working  men  and  women  in  industries  which 
afford  examples  of  each  of  these  various  forms  of  control, 
it  will  break  new  ground.  The  same  is  true  of  a  study  of 
the  effect  of  the  change  from  one  form  of  control  to  an- 
other in  the  same  industry.  How  far  are  most  trade  un- 
ions open  at  the  bottom  to  young  men  and  to  new-comers? 
"  Suppose  the  working  man  has  no  union  to  speak  for  him," 
asks  Professor  Ross,  "  what  are  the  forces  that  will  insure 
a  market  value  for  his  labor  ?  "  How  well  does  he  fare  in 
the  matter  of  fines,  dockages,  bonuses,  held-back  wages  and 
the  other  things  which  so  materially  affect  any  comparison 
of  earnings  ?  We  have  never  had  a  comprehensive  study  of 
the  lessons  to  be  learned  from  our  great  strikes.  We  could 
profit  from  a  much  deeper  sifting  of  the  experiences  in  in- 
dustrial adjustments  under  the  Erdman  Act  and  the  con- 
ciliation boards  in  the  coal  fields.  Still  more  fragmentary 
is  our  knowledge  of  how  in  actual  practice  the  vast  num- 
ber of  individual  bargains  are  struck  between  those  who 
offer  labor  and  those  who  offer  pay,  bargains  whose  terms 
and  conditions  bring  to  the  workers  a  consciousness  of  fair 
play  or  else  add  to  their  growing  sense  of  injustice. 

For  in  addition  to  this  disparity  in  strength  between  the 
parties  to  the  work  contract,  account  must  be  taken  of  the 


268  SOCIAL  UNREST 

continual  and  disturbing  changes  in  the  nature  of  the  work 
contracted  for,  the  necessity  for  making  newer  and  ever 
newer  bargains.  Sometimes  these  affect  a  large  class  of 
labor  all  at  once;  more  often,  some  few  operations  in  the 
midst  of  intricate  processes.  The  explanation,  of  course, 
lies  in  the  fact  that,  in  addition  to  the  sheer  transfer  of  hun- 
dreds of  thousands  of  people  from  agriculture  to  industry, 
industry  itself  has  been  overturned  from  top  to  bottom  by 
the  subdivision  of  labor,  by  the  introduction  of  power,  by 
the  use  of  chemicals,  by  the  increase  of  speeds  and  the 
changes  in  machinery  and  in  method.  The  measure  of  out- 
put which  was  the  subject  of  yesterday's  bargain,  like  the 
tools  with  which  the  work  was  performed,  is  obsolete  to- 
day. Too  often  have  the  workers  seen  the  gains  from  in- 
dustrial improvements  slip  through  their  ringers  or  bring 
them  loss,  by  replacing  a  skilled  mechanic  with  a  semi-skilled 
machine-tender.  Where  increased  output  has  led  only  to 
rate-cutting,  this  has  in  turn  given  rise  to  restriction  of  out- 
put and  to  opposition  to  machine  production.  Grievance 
on  the  one  hand  has  thus  bred  grievance  on  the  other. 

Is  it  too  much,  therefore,  to  look  to  this  commission  to 
discover  and  define  the  public  element  in  rate-making? 
Would  not  something  be  gained  if  it  considered  how  far 
the  miners'  program  of  public  and  accurate  tally  of  output 
can  be  given  general  application?  Has  not  the  Massachu- 
setts Minimum  Wage  Commission,  in  proposing  to  publish 
the  wages  paid  by  employers  who  fail  to  meet  its  minimums, 


BEFORE  THE  COMMISSION  269 

struck  an  important  principle  of  wage  publicity?  Is  there 
no  way  by  which  the  assurance  of  a  net  gain  to  the  work- 
ers may  be  a  recognized  factor  in  making  wage  adjustments 
following  an  improvement  in  method,  so  that  with  every 
mechanical  advance  the  general  level  of  wages  will  be  lifted 
a  bit  instead  of  lowered?  Would  not  industrial  progress 
itself  respond  to  such  a  social  policy  toward  invention? 

Closely  related  to  machine  production  is  another  element 
which  affects  the  foothold  of  American  workmen  in  the 
corporate  industries,  viz.,  the  vast  influx  of  immigrant  wage- 
earners.  More  important  than  the  fact  that  upon  their 
arrival  a  third  of  these  immigrants  are  illiterate,  is  the  fact 
that  before  coming  to  this  country  nearly  a  fifth  have  never 
worked  for  wages.  The  immigration  restrictionists  are  right 
in  saying  that  the  mass  and  insecurity  of  the  immigrants  act 
as  a  powerful  undertow  on  the  lower  bargaining  levels  of  all 
industries.  The  Federal  Immigration  Commission  indicated 
that  the  average  pay  of  day  labor  the  country  over  is  less 
than  the  sum  required  for  family  subsistence,  and  that  the 
influx  of  newcomers  tends  to  keep  it  there  for  immigrant 
and  native  workman  alike. 

The  engineer  and  the  physician  are  beginning  to  limit 
the  lawyer's  conception  of  the  freedom  of  contract  which 
permits  the  foreigner  to  be  placed  at  a  dangerous  machine 
which  he  does  not  understand,  or  which  allows  him  to  handle 
industrial  poisons  without  knowledge  of  their  evil.  We 
know  that  scores  of  rough  peasant  lads  have  been  crippled 


270  SOCIAL  UNREST 

by  lead  poisoning  in  American  industries.  The  new  com- 
mission may  well  consider  the  question  whether  the  con- 
trol which  society  might  exercise  in  such  cases  over  "  green- 
ers "  who  are  industrially  immature,  should  not  be  extended 
to  include  immigrant  laborers  in  whatever  industries  their 
presence  threatens  —  not  only  the  bodily  well-being  of  par- 
ticular men  but  the  social  and  economic  well-being  of  great 
trade  groups. 

This  change  in  tools  and  processes  which  has  displaced  old 
crafts  has  resulted  in  the  destruction  of  much  of  the  older 
social  fabric  upon  which  we  have  depended  both  for  reso- 
lute self  dependence  in  politics  and  for  conservative  leader- 
ship in  the  general  affairs  of  life.  The  English-speaking 
miners  of  western  Pennsylvania  built  up  churches,  lodges, 
unions  and  community  life.  Within  the  last  thirty  years,  as 
pointed  out  by  the  Federal  Immigration  Commission,  there 
has  been  an  exodus  of  these  pick  miners  from  certain  coun- 
ties to  the  Southwest;  and  immigrants  and  machine  saws 
have  taken  their  places.  With  this  lapsing  of  our  custom- 
ary social  institutions  in  such  regions,  it  becomes  all  the 
more  important  that  the  fabric  of  just  relations  in  industry 
be  stable,  so  that  whatever  befalls  the  community  life,  fair 
dealing  and  security  in  the  industrial  field  will  give  all  com- 
ers their  first  fundamental  impression  of  the  things  for  which 
America  stands. 

On  the  other  hand,  industrial  operations,  as  in  the  mines, 
in  logging,  in  construction  camps  and  even  in  the  new  in- 


BEFORE  THE  COMMISSION  271 

dustrial  towns,  carry  forces  of  workers  into  unpopulated 
areas  where  civil  society  has  not  yet  taken  root  or  is  still 
insecure.  In  these  twilight  zones  of  democratic  life,  injus- 
tice flourishes.  Fragmentary  information  which  reached  the 
public  from  the  coal  fields  of  West  Virginia  and  Colorado, 
the  copper  country  of  Northern  Michigan  and  the  timber 
lands  of  Louisiana  has  been  such  as  to  give  grave  concern 
as  to  hard-won  rights  subverted,  and  lawlessness  breeding 
lawlessness.  The  New  York  Immigration  Department  has 
found  grave  evils  in  construction  camps  all  over  the  state. 
This  department  may  have  suggestive  experience  to  offer  the 
commission  as  to  how  to  project  the  forces  of  industrial  law 
and  order,  so  as  to  be  available  promptly  and  naturally  to 
isolated  men  in  these  hinterlands  of  life  and  work. 

In  the  cities  themselves,  life  has  become  so  complex  and 
congested  that  the  fixing  of  the  terms  of  employment  is 
often  wrested  from  the  hands  of  employers  and  employees 
by  forces  over  which  they  individually  have  no  control. 
For  example,  it  is  common  practice  for  the  laundries  of  the 
United  States  to  require  their  ironers  to  work  half  through 
the  night  on  Fridays,  a  practice  which  means  broken  health 
and  broken  virtue  for  hundreds  of  women  yearly.  But  we 
realize  that  here  is  something  which  hinges  on  more  than  the 
moral  decision  of  any  individual  laundry  owner;  that  if  he 
refuses  to  operate  his  plant  on  Friday  nights  to  meet  the  de- 
mands of  his  patrons  for  clean  linen  for  Sundays,  he  will 
lose  their  custom  and  so  be  forcibly  retired  from  business. 


272  SOCIAL  UNREST 

Therefore  it  is  that  legislation  is  advocated  that  will  pro- 
hibit night  work  for  all  women  in  laundries,  and  so  put  all 
plants  on  an  equal  footing  and  make  the  man  with  the  bun- 
dle of  dirty  linen  pay  in  punctuality  what  is  too  often  paid 
for  out  of  wasted  lives.  The  situation  in  these  laundries 
shows  that  the  labor  contract  cannot  justly  be  wrenched 
from  the  social  growths  of  which  it  is  a  part  and  settled 
without  relation  to  its  human  context. 

II 

To  the  recognition  of  this  impotence  of  the  lone  em- 
ployer, and  to  a  growing  appreciation  of  the  weakness  of 
the  position  of  wage-earning  women  and  children  in  bar- 
gaining for  their  labor,  are  due  the  beginnings  of  new  stat- 
ute law  in  the  various  states,  limiting  the  right  of  contract. 
It  was  a  law  prohibiting  the  overwork  of  women,  protested 
by  an  Oregon  laundry  owner,  that  afforded  to  the  Supreme 
Court  of  the  United  States  the  opportunity  for  perhaps  its 
most  sweeping  decision  as  to  the  authority  of  the  state,  un- 
der its  police  power,  to  restrict  the  freedom  of  the  individual 
or  to  fix  the  terms  of  his  employment.  We  have  laws  in 
different  commonwealths  reducing  the  working  day  of 
women  and  prohibiting  the  work  of  children  who  in  size, 
education  or  age  are  under  a  certain  standard.  In  mining 
and  in  caisson  work  we  have  the  beginnings  of  similar  legis- 
lation applying  to  men.  How  far  such  statute  law  may 
be  used  to  the  advantage  of  labor  we  do  not  yet  know. 


BEFORE  THE  COMMISSION  273 

Our  new  industrial  commission  could  at  least  examine  the 
extent  to  which  the  labor  contract  is  already  limited  in  the 
different  states,  and  compare  our  laws  with  those  of  other 
countries  which  have  proved  salutary.  It  could  consider 
the  constitutional  principles  on  which  these  limitations  in 
our  statutes  have  been  successfully  based  and  could  review 
their  applicability  to  federal  legislation,  or  urge  such  uni- 
formity in  state  laws  that  the  progressive  commonwealth 
shall  not,  as  now,  be  penalized  for  the  humanitarian  legisla- 
tion which  puts  it  ahead  of  the  laggard  states. 

To  turn  from  statutes  limiting  freedom  of  contract  to 
statutes  changing  the  common  law  of  tort  liability,  it  should 
be  noted  that  state  after  state  has  during  the  past  five  years 
wiped  out  the  old  defenses  open  to  employers  in  damage 
suits  —  assumption  of  risk,  contributory  negligence  and  the 
fellow-servant  doctrine.  These  were  so  many  unwritten 
undertakings  of  the  contract  of  hire  which  for  three-quarters 
of  a  century  the  courts  assumed  the  workman  assumed  when 
he  took  a  job.  The  very  title  "  master  and  servant  "  harks 
back  to  an  earlier  day,  a  day  of  domestic  rather  than  of 
factory  production. 

There  may  well  be  other  ancient  obligations  in  the  con- 
ception of  the  work  contract  which  like  these  need  readjust- 
ment to  fit  new  times.  There  may  be  recent  modifications 
which  likewise  need  scrutiny  before  they  become  fixed  and 
hard.  Within  the  last  few  years  a  score  of  great  indus- 
trial corporations  have  instituted  elaborate  systems  of  profit- 


274  SOCIAL  UNREST 

sharing  and  bonus-paying,  service  pensions,  sickness  benefits, 
and  accident  relief.  The  National  Electric  Light  Associa- 
tion has  been  the  pioneer  in  developing  a  comprehensive  so- 
cial program  covering  all  these  points,  and  savings  funds 
in  addition.  A  generous  progress  is  here  at  work.  But  it 
should  be  noted  that  all  these  provisions  are  a  part  of  the 
bargain  between  employer  and  employee.  Some  of  them, 
like  the  payment  of  a  bonus,  if  it  is  made  dependent  upon 
good  behavior  and  even  then  held  back  for  a  period  of  pro- 
bation, are  clearly  devised  to  bind  the  employee  to  his  em- 
ployer and  to  prevent  strikes.  It  would  require  no  stretch- 
ing of  the  field  of  the  new  federal  commission  to  make  it 
cover  not  only  a  consideration  of  such  modifications  of  the 
labor  bargain,  but  an  investigation  of  the  systematic  schemes 
of  social  insurance  which  have  been  adopted  in  Europe  and 
have  there  attained  the  chief  ends  sought  by  the  systems 
inaugurated  by  some  employers  in  this  country,  without  sub- 
jecting the  employees  to  disadvantage.  In  the  adoption  of 
such  more  systematic  plans,  this  country  lags  far  behind 
Europe. 

Old  principles  of  the  common  law  and  constitutional 
rights  are  called  into  play  with  respect  not  only  to  the  labor 
contract  but  to  the  act  of  bargaining. 

In  periods  of  industrial  conflict  we  find  on  the  part  of 
both  employers  and  employees  a  vigorous  assertion  of  those 
principles  and  rights  which  most  nearly  serve  them.  Un- 
ions point  out  the  alacrity  with  which  police  and  military 


BEFORE  THE  COMMISSION  275 

forces  are  rushed  to  the  defense  of  property,  compared  with 
their  slowness  of  motion  where  human  rights  are  concerned. 
Employers  view  with  distrust  the  failure  of  unions  to  in- 
corporate so  that  they  can  be  brought  more  readily  before 
the  courts.  Unions  denounce  injunctions  which  would  stay 
their  hands  when  delay  would  mean  for  them  a  lost  strike. 
Employers  attack  picketing  as  an  interference  with  their 
business  and  in  some  industrial  districts  have  been  able  to 
make  it  unlawful.  Unions  stand  out  for  the  right  to  bar- 
gain collectively,  while  they  less  vehemently  assert  the  rights 
of  a  workman  who,  perhaps  because  of  the  personal  grudge 
of  a  union  official,  is  denied  membership  in  the  union  and 
hence  the  opportunity  to  earn  a  livelihood.  Employers, 
when  they  preach  loudest  as  to  the  right  to  work,  may 
mean  not  the  rights  of  resident  workmen,  but  the  right  of 
an  immigrant  to  sell  his  work  for  a  pittance,  unconscious  of 
the  effect  upon  American  standards;  or  they  may  mean  the 
right  of  a  strike-breaker  to  work  at  a  wage  temporarily  high 
and  thus  to  destroy  the  possibility  of  a  fair  test  as  to  whether 
bona  fide  workmen  will  accept  the  terms  to  which  the  strik- 
ers object.  And  this  bristling  championship  of  the  rights  of 
workmen  on  the  part  of  employers  too  often,  as  at  Little 
Falls  and  Paterson,  ignores  the  right  of  free  meeting,  with- 
out pain  of  discharge  or  police  interference,  or  the  right  to 
domicile,  as  at  Westmoreland,  where  a  petty  magistrate  en- 
joined a  priest  from  visiting  men  of  his  own  communion 
in  the  company  houses. 


276  SOCIAL  UNREST 

To  this  right  to  work,  the  commission  should  give  fresh 
scrutiny.  They  should  define  it  anew  on  the  basis  of  mod- 
ern conditions,  and  then  call  for  its  defense  with  the  force 
of  government.  But  there  are  other  elements  in  the  con- 
tractual relations  between  employer  and  employee  which, 
as  we  have  seen,  need  similar  scrutiny.  It  is  poor  states- 
manship to  apply  the  strength  of  the  government  merely  at 
such  points  in  a  desperately  subnormal  industrial  situation 
as  will  tend  only  to  perpetuate  it.  Petty  magistrates  and 
police,  state  militia  and  the  courts  —  all  these  were  brought 
to  bear  by  the  great  commonwealth  of  Massachusetts,  once 
the  Lawrence  strikers  threatened  the  public  peace.  But 
what  had  the  great  commonwealth  of  Massachusetts  done 
theretofore  to  protect  the  people  of  Lawrence  against  the 
insidious  canker  of  subnormal  wages  which  was  blighting 
family  life?  Such  policies  of  applying  public  strength  may 
be  so  inept  and  incomplete  as  to  amount  to  public  impotence. 

There  has  ever  been  a  political  significance  to  the  finely 
adjusted  laws  of  property  rights  which  have  been  developed 
by  Anglo-Saxon  civilization.  They  have  served  to  make 
the  small  man  —  farmer  or  tanner  or  weaver  as  he  might  be 
—  secure  in  his  property-holding  against  the  encroachment 
of  over-lord  or  king.  Under  the  changes  ushered  in  by  in- 
dustry, a  new  race  of  over-lords  has  risen  up,  holding  fief 
in  the  economic  life.  The  means  of  production  have  been 
transferred  from  small  to  powerful  hands;  the  industrial 
corporation  rather  than  the  homesteader  becomes  the  type 


BEFORE  THE  COMMISSION  277 

of  property  owner.  Should  not  the  commission  gauge  how 
far  these  laws  of  property  have  been  turned  to  purposes  the 
reverse  of  those  for  which  they  were  intended;  and  how 
new  balances  may  be  struck  ? 

As  Professor  Henry  R.  Seager,  former  president  of  the 
American  Association  for  Labor  Legislation,  has  pointed  out, 
when  wage  earners  see  in  the  injunction  process  a  legal  rem- 
edy which  may  be  used  effectively  by  one  side  in  an  indus- 
trial dispute  and  not  by  the  other ;  when  the  courts  tell  them 
that  they  may  strike  to  better  conditions,  but  that  if  they 
srike  to  strengthen  the  union  as  a  means  to  secure  those  better 
conditions  they  are  guilty  of  conspiracy;  when  a  court's 
view  of  the  boycott  seems  to  them  to  involve  a  denial  of 
their  liberty  to  patronize  whom  they  choose,  and  leads  to 
jail  sentences  for  conservative  leaders  like  John  Mitchell; 
when  the  Standard  Oil  Company  escapes  with  an  order  to 
dissolve  to  its  own  profit,  while  the  United  Hatters  are 
fined  $240,000  under  the  Anti-trust  Act;  then  wage  earn- 
ers are  strengthened  in  the  belief  that  for  whatever  purpose 
a  law  may  be  framed,  the  courts  will  be  certain  to  turn  it 
against  them  rather  than  against  their  employers.  When, 
in  the  midst  of  a  strike,  pre-revolutionary  riot  acts  and  stat- 
utes of  Edward  III  are  summoned  from  their  obscurity, 
that  belief  is  not  weakened. 

The  new  commission  could  do  few  things  more  clarify- 
ing than  to  reexamine  the  whole  trend  of  judicial  decision 
relating  to  labor  disputes,  and  to  come  forward  with  con- 


278  SOCIAL  UNREST 

structive  recommendations.  Many  of  the  most  one-sided 
decisions,  one  way  or  another,  are  embedded  in  the  records 
of  the  minor  courts,  and  only  such  a  resourceful  inquiry 
could  get  them  out  into  the  open.  Such  an  authoritative 
presentation  could  not  fail  of  itself  to  lift  the  levels  of  such 
court  proceedings  in  the  future. 

Ill 

We  have  thus  reviewed  rapidly  some  of  the  social  bear- 
ings of  the  work  contract  to  which  we,  singly,  in  groups, 
and  as  a  whole,  are  parties:  the  inequalities  in  the  organiza- 
tions which  participate,  the  injection  of  women  and  chil- 
dren and  immigrants  into  the  situation  to  complicate  the 
bargains  of  men,  the  revolutions  in  manufacturing  methods 
which  make  the  work  bargain  an  ever-recurring  fact,  the 
technical  development  which  makes  it  difficult,  the  social 
pressure  which  distorts  or  moulds  it,  the  laws  which  apply 
to  it  with  uncertainty.  As  Professor  Hoxie  puts  it:  "  It 
will  not  do  to  attribute  the  resulting  conditions  and  actions 
to  ignorance,  selfishness  or  perversity  on  the  part  of  em- 
ployers or  workers.  They  but  act  as  the  inherent  forces  of 
the  modern  industrial  system  dictate."  The  situation  is  one 
at  best  filled  with  organic  change,  adjustment  and  readjust- 
ment. It  would  put  to  the  test  the  most  firmly  woven  and 
clearly  defined  fabric  of  industrial  relations.  But  as  a  mat- 
ter of  fact  our  industrial  relations  are  not  firmly  woven  nor 
clearly  defined.  The  economic  motive  has  been  the  only 


BEFORE  THE  COMMISSION  279 

element,  sure,  certain,  omnipresent.  Under  pressure  from 
it,  as  a  natural  consequence,  men  have  taken  things  into 
their  own  hands;  singly  and  in  groups  they  have  applied 
remedies  which  at  worst  gouged  their  fellows  and  at  best 
have  been  but  a  partial  solution.  Encroachment  from  one 
quarter  has  been  answered  by  encroachment  from  another. 
The  leadership  which  has  been  the  subject  of  most  serious 
public  criticism  has  been  of  the  sort  which  has  forged  to  the 
front  among  men  on  a  war  footing  from  the  beginning  of 
time.  The  excesses  on  both  sides  have  been  of  the  sort 
which  are  inevitable  when  the  fabric  of  fair  play  is  not 
strong  enough  nor  well  enough  devised  to  stand  the  ten- 
sion. 

Viewed  from  the  angle  of  the  breakdown  of  government 
in  the  field  of  industrial  relations,  the  actions  of  manufac- 
turers in  extending  their  spheres  of  control  become  not  the 
ruthless  deeds  of  a  new  breed  of  pirates,  but  the  understand- 
able efforts  of  men  charged  with  the  difficult  task  of  pro- 
duction. Out  of  the  invertebrate  life  about  them  they  must 
muster  all  sorts  and  conditions  of  men  into  the  team  play 
of  industry  and  must  set  them  to  work  so  that  the  end  of 
each  day  heads  up  into  accomplishment,  must  adjust  them 
to  great  tools  and  mighty  natural  forces  in  the  never-ending 
strategy  of  producing  utility  out  of  energy  and  raw  ma- 
terial. 

But  progressive  employers  have  failed  in  this:  in  impos- 
ing voluntary  standards  upon  their  fellows  which  would 


280  SOCIAL  UNREST 

prevent  human  exploitation  in  any  and  every  quarter.  If 
the  function  of  setting  rules  to  the  game  is  therefore  taken 
over  much  more  fully  than  in  the  past  by  the  more  powerr 
ful  hands  of  the  state,  we  may  believe  that  the  resulting 
stability  and  good-will  would  release  for  industrial  execu- 
tives forces  of  cooperation  and  creativeness  among  their  men 
which  are  now  battened  down  by  private  discipline  and 
restraint. 

Viewed  from  this  same  angle  of  the  breakdown  of  govern- 
ment in  the  field  of  industrial  relations,  the  program  of 
organized  labor  becomes,  in  the  large,  not  a  ruthless  act 
of  aggrandizement,  but  the  struggle  of  men  to  bring  about 
order  and  security  for  themselves  and  their  kind;  and  this 
struggle  merges  in  the  slow  upward  march  of  democracy. 
For  the  homesteader  the  sale  of  a  peck  of  potatoes  or  of  a 
cord  of  wood  is  but  an  act  of  trade.  His  acres  stand  in- 
tact, however  the  bargain  goes.  But  on  the  work  contract 
in  the  industrial  world  hinge  the  intimate  facts  of  family 
life  and  well-being,  the  income,  the  leisure,  the  maintenance 
of  children,  the  hope  of  safe  old  age,  the  economic  strength 
of  a  self-governing  people  —  not  only  all  these  things  as 
they  are,  but  the  chance  for  what  is  to  come.  And  he  who 
views  the  economic  well-being  of  the  rank  and  file  of  the 
working  people  of  America  and  regards  it  as  sufficient  and 
finished,  is  out  of  joint  with  that  spirit  of  initiative  and 
enterprise  which  asserted  itself  individually  on  the  border  of 
western  settlement  and  which  in  our  century  is  asserting 


BEFORE  THE  COMMISSION  281 

itself  collectively  in  industry.  We  need  to  overhaul  the 
fabric  of  our  industrial  relations  so  that  they  will  stand 
the  tension  and  will  not  snap  before  this  upward  movement 
of  the  workers. 

The  public  is  directly  concerned  when  an  express  or  street 
railway  strike  blocks  the  currents  of  traffic,  or  a  garbage 
or  ice  strike  threatens  the  health  of  a  city,  or  when,  as  in 
the  Westmoreland  strike  of  a  year's  duration,  the  whole 
scheme  of  life  of  a  small  community  is  jeopardized.  Dur- 
ing such  strikes  we  hear  a  great  deal  about  the  great  third 
party  that  has  interests  at  stake  —  that  the  public  must  not 
be  made  to  suffer.  But  may  we  not  look  to  the  Federal 
Commission  on  Industrial  Relations  to  proclaim  the  public's 
duty  as  well  as  its  rights,  the  duty  to  put  its  own  house  in 
order,  to  set  about  a  better  coordination  and  cooperation  of 
all  state  and  federal  agencies  dealing  with  labor  conditions, 
to  overhaul  the  machinery  for  negotiation  and  legal  ad- 
justment, and  to  get  at  the  causes  which  bring  employer  and 
employee  to  the  clash  and  provoke  aggression  from  either 
hand.  For  enough  has  been  said  to  show  that  the  public's 
problem  is  not  merely  that  of  an  outraged  umpire  in  a 
struggle  between  two  contending  forces  in  our  economic  life. 
It  goes  deeper.  For  larger  and  larger  groups  of  Amer- 
icans it  is  becoming  the  problem  of  their  relations  as  a  free, 
self-governing  people  to  the  industrial  corporations  in  and 
through  which  they  obtain  their  livelihood.  In  one  of  the 


282  SOCIAL  UNREST 

pamphlets  issued  by  the  committee  which  secured  the  crea- 
tion of  the  commission,  it  was  said : 

We  have  not  as  yet  squarely  faced  this  mighty  shifting  in 
the  economic  foothold  of  the  democracy.  They  [industrial 
corporations]  are  becoming  the  permanent  basis  on  which 
much  family  life  and  citizenship  depend.  This  is  truer  to- 
day than  it  was  ten  years  ago,  truer  ten  years  ago  than  it 
was  twenty,  truer  in  number  of  people  so  engaged,  and  in 
the  size  of  these  industrial  units.  It  will  be  truer  ten  years 
from  now  than  it  is  today. 

Writing  as  chairman  of  the  committee,  Mr.  Devine  said : 

A  "  durable "  question,  is  the  expressive  phrase  in  which 
Lincoln  summed  up  the  issue  of  slavery.  This  being  in- 
terpreted means  that  it  was  a  "  struggle  which  was  not  to 
be  settled  in  a  day  but  must  be  stayed  by  and  followed  from 
phase  to  phase."  The  industrial  warfare  similarly  presents 
to  us  a  "  durable  "  question.  That  is  not  by  any  means 
the  same  thing  as  an  endless  or  insoluble  problem.  The 
physical  conquest  of  the  American  continent  was  a  "  dur- 
able "  struggle,  but  its  geographical  phase  is  ended  in  our 
own  generation.  The  abolition  of  poverty  requires  a  "  dur- 
able "  struggle,  but  it  is  within  sight  of  sober  and  respon- 
sible statesmanship.  The  "  durable  struggle  "  as  to  whether 
this  nation  was  "  to  ultimately  become  all  slave  or  all  free  " 
reached  its  "  final  and  rightful  result "  within  less  than  ten 
years  after  Lincoln's  defeat  by  Douglas  which  called  forth 
the  defeated  candidate's  clear  formulation  of  the  issue. 

It  took  the  stress  of  civil  war,  four  score  and  more  years 
after  the  nation  was  brought  forth,  to  remove  the  flaw  which 
the  founders  of  the  Republic  had  allowed  to  mar  the  rela- 


BEFORE  THE  COMMISSION  283 

tions  between  land  and  labor.  With  that  war  the  United 
States,  hitherto  an  agricultural  country,  entered  upon  its 
period  of  industrial  development. 

Fifty  years  later  a  group  of  forward-looking  men  and 
women  challenged  American  statesmanship  to  give  sober 
consideration  to  the  relations  between  corporate  industry  and 
labor,  not  necessarily  in  the  belief  that  any  such  deep-seated 
flaw  as  human  slavery  exists,  or  that  war  is  necessary  to 
remove  it,  but  with  the  profound  conviction  that  the  revo- 
lutionary economic  changes  of  the  half-century  have  put 
new  and  unusual  strains  upon  the  personal  rights  and  gov- 
ernmental forms  which  have  been  handed  down  from  earlier 
times,  and  that  it  is  the  especial  task  of  our  generation  to 
develop  an  industrial  procedure  that  will  readily  and  nat- 
urally lead  to  justice  and  fair  dealing  in  the  same  way  that 
earlier  centuries  saw  the  slow  evolution  of  a  civil  society 
conceived  in  liberty. 

The  Commission  on  Industrial  Relations  is  a  response 
to  that  challenge.  Upon  it  Congress  has  laid  the  respon- 
sibility for  such  a  public  and  resourceful  scrutiny  of  all  the 
facts,  that  before  we  enter  upon  any  partial  or  fragmentary 
solutions,  the  situation  may  be  seen  as  a  whole  and  under- 
stood of  all  men. 


XXIII 
THE  MIDDLEMAN" 

ALBERT  W.  ATWOOD 

Twenty-two  different  delivery  wagons  from  as  many  dif- 
ferent grocery  stores  stood  in  front  of  a  large  New  York 
City  apartment  house  one  day.  George  W.  Perkins,  whose 
prominent  part  in  the  formation  and  direction  of  several  of 
our  great  industrial  combinations  is  well  known,  heard  of 
these  twenty-two  wagons  and  remembered  the  incident. 
The  next  time  he  spoke  on  the  subject  of  combinations  and 
trusts,  which  was  before  the  Senate  Committee  on  Inter- 
state Commerce,  he  drove  home  his  argument  with  that  very 
illustration  of  the  economic  waste  involved  in  many  of  the 
present  methods  of  bridging  the  gap  between  producer  and 
consumer. 

The  question  of  the  high  cost  of  living  has  been  dis- 
cussed until  it  has  become  tiresome,  but  the  subject  is  one 
which  must  remain  engrossing  until  it  is  solved.  While  the 
fact  is  ascribed  to  many  causes,  the  man  on  the  street  points 
most  insistently  to  the  trust  and  the  middleman.  Let  us 
lay  aside  trusts  for  the  present  and  examine  the  Middleman. 

Even  the  most  superficial  observation  at  once  reveals  an 
285 


286  SOCIAL  UNREST 

astonishing  discrepancy  between  what  the  producer  receives 
for  his  products  and  what  the  ultimate  consumer  pays  for 
them.  Many  figures  on  this  subject  are  haphazard,  it  is 
true,  but  there  are  enough  reliable  data  to  establish  beyond 
a  doubt  the  fact  that  present  facilities  for  bridging  the  gap 
between  producer  and  consumer  are  an  expensive  makeshift, 
without  orderly  plan  or  system.  Grapes  which  sell  for  forty 
cents  a  basket  in  the  city  have  been  known  to  return  the 
grower  but  seven  cents.  A  ten-cent  bottle  of  milk  in  New 
York  returns  the  dairyman  about  three  cents.  The  differ- 
ence between  what  the  wholesaler  pays  for  creamery  butter 
and  what  you  and  I  pay  is  17^4  per  cent.,  on  cheese  it  is 
27  per  cent.,  on  eggs  563/2  per  cent.,  and  on  poultry  25  per 
cent.  On  food  products  as  a  whole,  in  New  York  City 
and  other  large  cities  in  the  Empire  State,  the  producer  is 
receiving  only  about  40  per  cent,  of  the  retail  price.  "  That 
is  absurd,"  says  the  New  York  State  Food  Investigat- 
ing Commission ;  "  he  should  receive  from  60  to  70  per 
cent." 

Not  long  ago  when  sentencing  several  dealers  in  live 
poultry  to  jail  for  combining  in  restraint  of  trade,  the 
judge  said:  "  Between  the  farm  and  the  kitchen  a  chicken 
has  six  separate  profits  fastened  on  it.  Six  separate  profits 
must  be  paid  when  a  chicken  is  bought  over  the  retailers' 
counter.  Is  it  any  wonder  that  the  poor  are  getting 
poorer?  " 

Fresh,  abundant,  and  cheap  food  can  only  be  had  by  en- 


THE  MIDDLEMAN  287 

couraging  production.  The  present  excessive  cost  for  trans- 
portation, storage,  selling,  and  delivery,  that  is,  for  all  the 
various  processes  of  distribution  which  the  so-called  Middle- 
man performs,  simply  discourages  the  producer.  Under 
present  conditions  the  near-by  sources  of  food  supplies  for 
many  of  the  great  cities  are  dormant  or  drying  up.  New 
York  gets  its  fresh  vegetables  from  the  most  distant  points ; 
Buffalo  is  fed  very  largely  from  the  West;  Albany  does  not 
receive  one-quarter  of  her  butter,  eggs,  chicken,  or  veal  from 
the  excellent  farm  lands  around  that  city.  The  final  ab- 
surdity is  reached  when  far  better  apples  than  those  which 
cost  five  cents  each  at  the  fruit  stand,  rot  on  the  ground 
within  a  hundred  miles  of  a  great  city,  as  the  writer  has 
seen  them  do. 

Clearly  there  is  a  tremendous  amount  of  waste  in  this 
whole  process.  New  York  City's  annual  food  supply,  which 
costs  $350,000,000  at  the  terminals,  rises  to  $500,000,000 
when  the  consumer  gets  it.  Each  inhabitant  of  the  city  pays 
his  share  of  this  $150,000,000.  Either  the  profits  are  exces- 
sive or  else  the  flow  of  food  supplies  from  producer  to  con- 
sumer is  hindered  and  stopped  by  inexpressibly  poor  facili- 
ties. Is  the  Middleman  fattening  upon  the  consumer? 
Should  every  wholesaler,  jobber,  dealer,  commission  man 
and  retailer  go  to  jail? 

What  light,  for  example,  do  certain  recent  doings  of  a 
picturesque  and  spectacular,  if  not  almost  hysterical  nature, 
throw  upon  the  subject?  A  clergyman  in  one  city  and  a 


288  SOCIAL  UNREST 

mayor  in  another  attracted  an  astonishing  amount  of  at- 
tention some  months  ago  by  opening  markets  and  selling 
food  products  at  less  than  the  retail  store  prices.  Mayor 
Shank,  of  Indianapolis,  and  the  Rev.  Madison  C.  Peters, 
of  New  York,  both  declare  that  the  middleman,  that  is, 
the  retailer,  as  much  as  any  of  the  other  agencies  engaged 
in  the  distribution  of  food  products,  is  the  party  responsible 
for  high  prices.  Mayor  Shank  sold  fruit,  vegetables,  and 
poultry  at  far  lower  prices  than  the  scale  prevailing  else- 
where in  his  city.  The  reverend  gentleman  in  New  York 
sold  potatoes  at  several  cents  a  pound  below  prevailing 
prices. 

These  extra-vocational  activities  of  mayor  and  clergyman, 
petty  as  they  were,  are  nevertheless  incidents  in  a  mighty 
train  of  events  connected  with  the  protest  against  high  liv- 
ing costs.  Not  long  afterward,  a  Housewives'  League  in 
New  York  City  undertook  to  show  women  how  to  buy 
food  cheaply.  Then  there  were  meat  boycotts  and  riots  in 
many  cities.  Cooperative  stores  have  been  started  in  suburbs 
of  New  York  City.  Markets  are  being  formed  for  the 
despised  push-cart  peddlers.  The  organization  of  large 
municipal  markets  has  been  urged.  "  More  terminal  mar- 
kets! "  is  one  cry,  and  it  is  pointed  out  that  because  of  poor 
handling  and  defective  arrangements  for  the  reception  and 
distribution  of  food  there  is  an  unnecessary  damage  each 
year  of  $75,000,000  to  eggs  and  poultry. 

Railroads  and  steamship  lines  are  being  blamed  for  af- 


THE  MIDDLEMAN  289 

fording  inadequate  terminal  facilities  as  compared  with  those 
of  such  model  cities  as  Hamburg.  The  express  companies 
come  in  for  their  share  of  censure,  and  the  Parcel  Post  is 
expected  to  lower  living  costs.  Fruit  growers  of  the  North- 
west have  formed  selling  agencies  to  wipe  out  the  Middle- 
man. In  Pittsburgh,  Buffalo,  Cleveland,  and  Chicago  fed- 
erated marketing  clubs  of  consumers  have  been  organized. 
Consumers'  cooperative  buying  societies  are  springing  up 
everywhere,  in  the  army  and  navy,  and  among  postal  clerks. 
Village  improvement  societies  are  studying  the  question. 
Then  there  are  those  who  think  the  lack  of  roads  in  the 
country  districts  is  mainly  responsible.  There  are  a  thou- 
sand and  one  explanations  and  proffered  remedies.  The 
air  is  surcharged  with  bitterness  against  the  Middleman. 
The  one  fact  which  men  have  firmly  fixed  in  their  minds 
is  this:  Of  the  sum  which  consumers  of  this  country  pay 
for  agricultural  products  less  than  one-half  goes  to  the 
farmer. 

But  what  does  this  bewildering  medley  of  fact  and  fancy, 
protests  hysterical  and  protests  well  considered,  passing  in- 
cident and  significant  tendency,  all  go  to  prove,  if  it  proves 
anything?  Does  it  prove  that  the  Middleman  is  fattening 
upon  the  consumer?  Look  about  you.  Are  the  little 
grocers  and  butchers  growing  rich?  There  are  11,000 
grocers  in  New  York  City  and  the  State  Food  Investigat- 
ing Commission  says  that  high  operating  costs  make  their 
elimination  inevitable.  "  He  is  now  slowly  wearing  out." 


290  SOCIAL  UNREST 

Of  the  33J/3  per  cent,  which  this  class  of  stores  adds  to  the 
wholesale  price,  less  than  5  per  cent,  is  profit.  Referring 
even  to  wholesalers  and  jobbers,  the  report  of  the  commis- 
sion declares  that  no  class  is  making  an  undue  profit,  whereas 
the  smaller  dealers  are  "  merely  making  wages." 

What,  then,  do  these  attempts  to  solve  the  problem  of 
high  living  costs  prove?  Well,  they  prove  there  are  indis- 
pensable functions  which  some  one  must  perform.  They 
prove  that  distribution  is  costly,  no  matter  how  you  ar- 
range it.  They  prove  that  as  civilization  grows  more  com- 
plex the  cost  of  getting  an  article  to  the  consumer  in  the 
shape  he  wrants  it  is  proportionately  greater  than  the  cost  of 
the  article  itself.  //  is  possible  by  some  artificial  or  me- 
chanical change  of  plan  to  do  away  with  the  shipper,  the 
commission  merchant,  the  jobber  and  the  retailer,  but  it  is 
impossible  to  do  away  with  the  services  they  perform.  We 
can  eliminate  the  Middleman,  but  it  has  been  well  said  that 
if  we  do  so  there  will  be  sore  hands,  aching  backs,  and  tired 
heads  after  he  is  gone. 

Let  us  return  for  a  moment  to  the  activities  of  Mayor 
Shank  and  the  Rev.  Mr.  Peters,  but  let  us  not  jump  at  con- 
clusions. These  men  had  free  advertising,  free  rent,  and 
abnormal  "  good-will  "  to  begin  with.  They  had  practically 
no  clerk  hire,  extended  no  credit,  delivered  no  goods,  cashed 
no  checks  for  customers,  accumulated  no  bad  debts,  and 
paid  no  taxes  or  insurance.  A  prominent  jurist  of  New 
York  City  complained  recently  that  he  paid  $1.80  for  a 


THE  MIDDLEMAN  291 

basket  of  potatoes.  But  the  learned  judge  neglected  to  tell 
his  interviewer  that  his  residence  is  on  Fifth  Avenue,  and 
that  any  grocery  store,  to  be  near  that  thoroughfare,  must 
pay  an  enormous  rent,  which  can  only  be  gotten  back  by 
charging  the  consumer  proportionately  large  prices. 

Let  us  be  quite  honest  about  this  matter.  The  retailer 
not  only  has  to  pay  high  rents  to  be  near  your  home,  but 
he  has  to  light,  heat,  and  man  his  store  from  daylight  to 
late  at  night  so  that  you  can  go  to  him  at  any  time  of  day 
that  may  please  your  fancy.  He  maintains  expensive  teams, 
or  else  pays  wages  to  delivery  boys,  and  buys  carts.  He 
sends  solicitors  to  your  door  to  learn  what  groceries  you 
wish  for  the  day.  He  will  deliver  to  you  a  five-cent  pack- 
age of  matches  at  any  time  of  day.  He  sends  you  your  ar- 
ticles carefully  done  up  in  nice  packages  and  carefully 
wrapped.  It  is  a  costly  process. 

The  delivery  charge  for  the  average  grocery,  or  corner 
store,  averages  nearly  one-half  the  total  expenses  for  the 
establishment  and  adds  from  10  to  15  per  cent,  to  the  cost 
to  the  consumer.  The  fancy  packages  add  from  50  to  100 
per  cent,  to  the  cost  of  the  goods,  and  the  public  seems  un- 
able to  withstand  the  bombardment  of  advertising  by  the 
large  firms  dealing  in  package  goods.  Then,  again,  the 
telephone  has  greatly  increased  the  expense  of  doing  busi- 
ness, while  it  has  often  lowered  the  quality  of  goods  received 
by  the  housekeeper.  With  telephone  at  her  elbow  she  does 
not  take  the  trouble  to  prepare  a  list  of  her  needs  in  advance, 


292  SOCIAL  UNREST 

give  one  order  and  have  it  sent  up  with  a  minimum  of  ex- 
pense in  delivery,  but  sends  in  three  or  four  separate  orders 
a  day. 

There  are  few  if  any  facilities  for  storage  of  food  in  the 
modern  city  apartment,  so  that  the  meals  are  of  the  hand-to- 
mouth  variety,  and  this  tendency  is  further  emphasized  by 
the  increasing  number  of  women  who  go  out  to  work,  and 
who,  upon  their  return,  find  it  necessary  to  prepare  hasty 
meals.  Their  purchases,  especially  of  meats,  are  of  the 
chop  and  steak  variety,  which  can  be  quickly  cooked,  and 
there  is  a  decline  in  the  use  of  the  cheaper  but  equally  nu- 
tritious stew  meats. 

For  all  these  comforts,  conveniences,  and  luxuries,  per- 
formed as  they  are  by  the  Middleman,  the  consumer  must 
pay.  "  It  is  about  time  for  him  to  stop  playing  the  part  of 
a  man  with  a  grievance,"  says  Mr.  Holmes  of  the  Depart- 
ment of  Agriculture.  "  Nearly  all  the  grievances  that  can 
be  corrected  at  all  can  be  corrected  by  himself.  He  can  buy 
with  greater  economy  through  co-operative  efforts,  and  by 
paying  cash,  and  also  with  greater  economy  in  forms,  prep- 
arations, and  varieties  of  things."  If  consumers  are  willing 
to  go  to  market  instead  of  expecting  the  market  to  come  to 
them,  if  they  are  willing  to  carry  the  purchases  home,  and 
even  wrap  and  tie  the  bundles  themselves,  then  they  may 
fairly  claim  the  profit  which  now  goes  to  the  Middleman. 

Let  the  women  buy  as  their  mothers  used  to  do.  Let 
them  send  their  own  crock  to  the  grocer's  for  lard,  and  bring 


THE  MIDDLEMAN  293 

back  for  65  cents  what  will  cost  them  $i  in  a  can  which 
they  will  throw  away,  or  ruin  in  the  opening.  Let  them 
buy  their  crackers  from  a  box  by  weight  and  they  will  get 
sixty  to  the  pound,  instead  of  about  forty  in  a  pretty  pack- 
age for  the  same  money.  Instead  of  buying  package  oats 
at  the  rate  of  one-half  cent  per  ounce,  let  them  buy  in  bulk 
and  get  10  cents'  worth  for  7  cents.  Instead  of  buying 
sliced  bacon  in  a  glass  jar,  let  them  buy  a  "  side  "  and  cut 
it  as  wanted  at  half  price. 

But  will  women  buy  as  their  mothers  did  in  these  days 
when  their  interests  have  become  so  much  greater  and  more 
diversified?  Have  they  the  time?  As  for  fancy  packages, 
probably  they  are  more  sanitary  than  the  old  barrel.  Milk 
in  bottles  is  more  expensive  than  in  the  old  tin  can,  but  who 
wishes  to  return  to  the  dirty  can?  The  waste  of  many  de- 
livery wagons,  expensive  locations,  and  extension  of  credit 
are  the  natural  results  of  competition!  Ordering  by  tele- 
phone and  by  means  of  servants  are  merely  time-saving  de- 
vices, and,  while  they  cost  a  great  deal  of  money,  this  is  a 
time-saving  age. 

The  consumer  demands  far  more  than  formerly,  and  the 
Middleman  is  supplying  the  want.  Greater  demands  mean 
greater  cost  which  the  consumer  must  pay.  But  why,  you 
may  ask,  cannot  the  producer  himself  perform  some  of  these 
middle  functions?  Why  can  he  not  reach  the  consumer 
directly?  In  many  cases  this  is  possible,  but  there  is  no 
sweeping  panacea  in  that  direction. 


294  SOCIAL  UNREST 

An  acquaintance  of  the  writer's  has  a  dairy  farm  near 
Washington,  D.  C.  He  would  be  glad  to  sell  directly  to 
the  consumer,  and  if  he  could  do  so  without  increase  of  ex- 
pense he  could  probably  afford  to  sell  the  richest  of  milk 
and  cream  to  consumers  at  lower  prices  than  they  now  pay 
for  an  inferior  product.  But  there  is  no  way  by  which  the 
dairy  farmer  can  have  his  empty  receptacles  returned  if  he 
sells  direct  to  the  householder.  Then  in  order  to  get  trade 
of  a  desirable  class  he  would  have  to  advertise  extensively, 
have  a  distinctive  mark  for  his  product,  and  put  the  milk 
into  expensive  bottles.  This  is  too  much  for  a  single  farmer 
to  do.  He  prefers  to  sell  to  middlemen  even  though  he 
knows  the  consumer  pays  as  much  again  for  the  milk. 

My  acquaintance  already  spends  much  money  in  produc- 
ing milk,  without  entering  upon  the  still  larger  expenditures 
necessary  to  reach  the  consumer  directly.  The  health  au- 
thorities of  the  District  of  Columbia  have  adopted  new  and 
strict  regulations.  They  require  from  each  dairy  a  ver- 
itable bill  of  particulars.  There  are  regulations  as  to 
whether  the  cows  shall  be  on  wood  floors  or  cement  floors. 
Frequent  examinations  and  reports  are  the  rule.  This  all 
takes  more  capital,  even  though  it  raises  the  standard  of  the 
product.  My  friend,  in  order  to  be  abreast  of  the  best 
methods  of  dairy  farming,  has  actually  taken  away  from 
the  Department  of  Agriculture  the  best  expert  to  be  had,  a 
graduate  of  an  important  agricultural  college.  This  man 
was  obtainable  only  by  paying  a  large  salary,  the  expense  of 


THE  MIDDLEMAN  295 

which  must  be  spread  over  many  quarts  of  milk  and  pounds 
of  butter.  All  this  makes  for  cleaner,  better  milk  and  but- 
ter, but  it  makes  their  cost  so  much  the  more. 

But  suppose  our  dairy  friend  were  in  close  co-operation 
with  a  hundred  other  dairymen,  or  suppose  his  business  were 
a  hundred  times  as  great  as  it  is,  and  his  capital  in  propor- 
tion. Would  he  not  then  be  able  to  reach  the  consumer 
more  directly  and  with  an  appreciable  saving  in  costs?  Un- 
doubtedly, as  has  been  shown  many  times.  Experts  who 
have  investigated  food  conditions  in  New  York  City  de- 
clare that  if  there  were  200  great  food  stores  for  the  entire 
city,  instead  of  20,000  small  stores  as  at  present,  there  could 
be  effected  a  saving  in  retail  prices  of  $60,000,000  a  year. 
Perhaps  the  consumer  would  not  get  all  the  saving,  but  the 
possibility  is  there.  The  books  of  a  few  of  the  big  depart- 
ment foods  stores  show  that  their  cost  of  operation  is  about 
half  that  of  the  small  retailer. 

Mr.  Perkins  was  right  when  he  pointed  to  the  wasteful- 
ness of  twenty-two  grocery  stores  catering  to  one  apartment 
house.  Those  who  have  purchased  in  small  shops  and  in 
great  department  stores  need  no  argument  to  prove  the 
economy  of  large-scale  business.  Of  course  the  mere  fact 
that  a  corporation  is  large  does  not  prove  it  efficient.  We 
are  learning  daily  that  mere  size  does  not  mean  efficiency. 
It  may  merely  indicate  the  possession  of  special  privileges 
or  the  employment  of  predatory  and  piratical  methods.  But 
up  to  a  certain  point  there  is  efficiency  and  saving  in  doing 


296  SOCIAL  UNREST 

things  on  a  large  scale,  a  fact  which  'the  investigations  of 
experts  and  daily,  common  knowledge  and  experience,  as 
well  as  the  theories  of  economists,  prove  beyond  question. 
A  distinguished  economist  recently  enumerated  thirteen  dis- 
tinct economies  which  might  follow  combination  and  con- 
centration. 

To  many  men,  however,  these  economies  mean  nothing. 
Their  belief  in  the  blessings  of  competition  is  so  fixed  that 
it  cannot  be  dislodged.  They  lose  the  substance  in  grasping 
for  the  shadow.  They  think  that  two  telephone  companies 
or  two  gas  companies  covering  the  same  field  are  better  than 
one.  They  refuse  to  see  that  almost  invariably  the  public 
is  inconvenienced  by  poor  service  and  that  it  pays  the  exces- 
sive cost  of  construction,  operation  and  upkeep.  Generally 
it  does  not  pay  profits,  for  there  are  seldom  any.  They  do 
not  see  the  waste  involved  in  a  half-dozen  concerns  all  at- 
tempting to  cover  the  same  territory  and  offering  the  same 
service.  Gradually,  however,  the  consumer  is  beginning  to 
see  that  he  pays  for  all  this  duplication  and  that  a  great 
part  of  his  trouble  arises  from  this  fact.  Whenever  two 
salesmen  are  paid  for  doing  an  amount  of  work  one  could 
easily  do,  when  two  delivery  wagons  or  teams  are  kept  where 
one  would  be  sufficient,  the  consumer  pays. 

Why  then  should  not  we,  the  consumers,  urge  with  every 
means  in  our  power  the  formation  of  combinations,  co-oper- 
ative arrangements,  and  agreements?  But  do  you  realize 
that  the  moment  men  begin  to  make  agreements  they  must 


THE  MIDDLEMAN  297 

employ  a  lawyer  to  see  that  they  do  not  violate  the  Sherman 
Anti-Trust  Law?  It  is  all  very  well,  for  example,  to  point 
to  the  citrus-fruit  growers  who  by  agreement  and  co-opera- 
tion among  themselves  have  wonderfully  improved  the  han- 
dling of  their  product  in  the  great  cities.  No  doubt  they 
are  within  the  law,  but  there  are  hundreds  of  associations 
and  agreements  not  so  widely  different  in  their  purposes, 
the  members  of  which  do  not  know  whether  they  are  within 
or  without  the  law. 

The  average  citizen  has  no  idea  to  how  great  an  extent 
mere  associations  or  agreements  in  contradistinction  to  for- 
mal trusts  have  been  held  responsible  for  the  high  cost  of 
living.  In  1911  there  were  forty-four  cases  either  decided 
or  pending  under  the  Sherman  Law,  all  of  which  had  to  do 
with  alleged  efforts  to  control  the  prices  of  commodities. 
No  less  than  107  suits  have  been  brought  under  this  law, 
and  the  great  majority  have  been  directed  at  mere  trade 
agreements,  associations,  and  pools  of  business  men. 

The  range  of  these  prosecutions  has  been  astonishing.  The 
mammoth  steel,  oil  and  tobacco  trusts  were  sued,  but  so  also 
were  the  kindling-wood,  plumbers'  and  bill-posters'  trusts, 
the  existence  of  which  was  never  before  hinted  at  outside 
the  comic  papers,  and  now  the  Horseshoe  Trust  is  threat- 
ened. Go  over  the  list  of  suits  brought  under  the  Sherman 
Law.  //  reveals  the  striking  fact,  not  generally  known,  or 
heretofore  anywhere  emphasized,  that  the  Law  has  been  di- 
rected not  so  much  against  the  great,  formal,  single  trusts  as 


298  SOCIAL  UNREST 

against  individuals  and  moderate-sized  and  even  small  con- 
cerns in  agreement  one  with  another.  Besides  the  plumb- 
ers, bill-posters,  and  kindling-wood  dealers,  there  have  been 
grocers,  a  dozen  associations  of  lumber  dealers,  coffee  mer- 
chants, moving-picture  men,  wire  manufacturers,  wall-paper 
manufacturers,  milk  dealers,  egg  and  butter  dealers,  meat 
dealers,  cotton  operators,  manufacturers  of  enamel  ware,  a 
score  of  steamship  lines,  railroads  in  agreement  as  to  rates, 
railroads  in  agreement  as  to  the  production  of  soft  coal, 
railroads  in  agreement  as  to  the  production  of  hard  coal, 
railroads  in  agreement  as  to  the  use  of  a  terminal  station, 
hide  and  rendering  companies,  magazines,  manufacturers  of 
lamps,  and  companies  controlling  towing  facilities  on  the 
Great  Lakes.  Many  of  these  associations  were  formed  to 
fight  a  great  trust  which  was  attempting  to  monopolize  the 
field.  Now  absurd  as  it  may  seem  to  invoke  the  mighty 
engine  of  the  Sherman  Law  against  the  petty  dealers  in  kin- 
dling wood,  there  is  involved  in  suits  such  as  these  a  prin- 
ciple of  vital  importance  to  the  nation. 

Most  of  the  suits  which  have  been  pushed  to  a  termina- 
tion have  spelled  victory  for  the  Government,  and  the  de- 
fendants have  been  compelled  to  give  up  old  practices. 
Many  combinations  have  agreed  to  change  their  ways  merely 
on  threat  of  a  suit,  although  the  most  expensive  lawyers 
were  on  their  side.  What  the  Department  of  Justice  has 
attacked  are  the  agreements  among  numerous  concerns,  in 
no  way  connected  by  stock  ownership,  but  all  desirous  in 


THE  MIDDLEMAN  299 

some  way  of  regulating  the  expensive  and  wasteful  compe- 
tition previously  existing  among  themselves. 

In  almost  every  case,  either  where  a  suit  has  been  fought 
to  successful  conclusion,  or  where  the  trust  has  come  down 
like  Davy  Crockett's  coon,  the  point  at  issue  had  to  do  with 
methods  of  selling  goods.  It  is  unnecessary  to  go  into  de- 
tails here,  but  suffice  it  to  say  that  many  methods  of  reduc- 
ing or  destroying  competition  have  been  stopped  by  the  en- 
forcement of  the  Sherman  Law. 

But  the  present  method  of  attacking  combinations  which 
work  against  the  public  welfare  is  most  unsatisfactory.  To 
the  Attorney-General  is  left  the  discretion  of  bringing  suit. 
So  wide  is  the  range  which  the  suits  already  brought  have 
taken,  and  so  unlimited  is  the  discretion  of  the  Attorney- 
General  as  to  what  trade  agreements  he  may  attack  that  no 
business  man  can  tell  from  day  to  day  when  he  may  be  haled 
into  court.  At  best  regulation  by  lawsuit  is  sporadic  and 
unfair.  There  is  room  for  too  much  favoritism.  One 
Attorney-General  may  be  high-minded  and  wholly  devoted 
to  the  public  interest,  but  another  may  not.  Regulation  by 
lawsuit  will  not  suffice.  The  country  is  too  open  to  the 
evil  of  shifting  policies.  There  is  involved  in  this  method 
no  well-ordered  or  scientific  system  of  regulating  combina- 
tions. 

Reference  has  already  been  made  in  an  earlier  article  in 
this  series  to  the  hearings  before  the  United  States  Senate 
Committee  on  Interstate  Commerce  held  last  winter.  The 


300  SOCIAL  UNREST 

testimony  given  before  the  committee  cannot  be  neglected  by 
any  serious  thinker  upon  our  present  day  economic  prob- 
lems. Perhaps  the  most  striking  feature  in  all  this  mass 
of  testimony  is  the  bewilderment  of  the  business  men;  and 
by  this  term  is  meant  the  really  constructive  factors  in  our 
industrial  life  and  not  the  speculators  or  the  parasites. 
These  men  declare  that  they  are  in  a  quandary.  They  can- 
not tell  whether  or  not  they  are  violating  the  law.  No 
matter  how  honest  their  intentions,  at  any  moment  they 
may  be  charged  with  crime.  Naturally  they  are  afraid  to 
extend  their  business. 

This  is  no  slight  matter,  and  the  accuracy  of  the  state- 
ment is  confirmed  by  other  testimony.  One  of  the  distin- 
guished lawyers  in  the  country  with  large  experience  as 
legal  adviser  of  corporations,  declares  that  he  is  unable  to 
advise  his  clients  with  any  degree  of  assurance.  Where  one 
concern  may  be  haled  before  a  court  and  another  with  ap- 
parently similar  organization  and  methods  is  untouched,  no 
wonder  there  is  unrest  and  uncertainty. 

But  this  is  far  from  being  the  only  objection  to  the  one 
hundred  and  seven  law  suits.  The  country  is  fairly  honey- 
combed with  trade  agreements  —  with  informal  trusts  —  if 
you  will  have  it  that  way.  Practically  all  business  is  car- 
ried on  by  means  of  trade  agreements,  more  or  less  strong, 
and  the  business  is  usually  prosperous  where  the  agreements 
are  strongest.  Business  men  say  they  cannot  prosper  with- 
out these  agreements.  Cutthroat  competition  will  ruin 


THE  MIDDLEMAN  301 

them.  They  must  associate  one  with  another.  But  what 
are  they  to  do  with  the  terror  of  the  Sherman  Law  with 
them  by  day  and  by  night? 

Moreover,  where  the  Department  of  Justice  has  broken  up 
one  old  agreement,  there  are  hundreds  which  it  has  not 
reached.  Samuel  Untermeyer,  the  corporation  lawyer,  has 
gone  so  far  as  to  assert  that  not  one  in  a  thousand  has  been 
touched.  It  is  true  that  many  of  the  old-style  agreements 
have  gone, —  those  that  were  made  hard  and  fast  in  writ- 
ing. Since  the  Sherman  Law  has  been  so  extensively  en- 
forced most  of  these  have  become  as  dead  as  the  old  pool 
arrangements  of  two  or  three  decades  ago.  There  are  safes 
in  New  York  stuffed  with  the  written  evidences  of  these 
"  conspiracies,"  and  with  "  big  "  men's  signatures  attached 
to  them.  These  agreements  are  no  longer  in  effect,  but 
how  about  the  associations  for  the  betterment  of  trade,  the 
dinner  and  luncheon  clubs,  the  reunions  and  general  under- 
standings, the  gentlemen's  agreements,  and  the  telephone 
messages  ? 

In  one  of  his  campaign  speeches  Governor  Woodrow  Wil- 
son remarked  that  the  trial  of  the  meat  packers  had  devel- 
oped some  very  interesting  things.  "  We  found  out,"  he 
said,  "  that  you  did  not  have  to  form  a  great  combination, 
that  all  you  had  to  do  was  to  be  polite,  that  all  that  the 
meat  packers  did  was  to  meet  without  forming  a  legal  or 
illegal  union  of  any  kind,  and  consult  together  as  to  what 
price  they  would  like  to  have  meat  sell  at.  Then  a  very 


302  SOCIAL  UNREST 

nice  young  gentleman,  whom  they  employed  for  the  purpose 
as  their  secretary  and  spokesman,  would  write  a  very  prettily 
phrased  letter  to  all  of  them  suggesting  that  perhaps  it  was 
desirable  to  quote  meat  at  such  and  such  a  price  and  they 
felt  bound  by  the  etiquette  of  perfect  gentlemen  to  observe 
that  price.  That  is  all." 

There  are  undoubtedly  dangers  and  evils  lurking  in  the 
trusts,  but  much  greater  are  the  evils  and  dangers  in  the 
many  forms  of  trade  agreements,  for  they  are  vastly  more 
numerous.  At  present  the  public  has  no  protection  against 
secret  agreements  except  an  occasional  long  drawn  out  law- 
suit. But  these  suits  with  their  revelations  of  the  inside 
history  and  methods  of  American  combinations  show  con- 
clusively the  remarkable  similarity  of  many  of  these  com- 
binations to  the  long  discarded  pools  of  twenty  and  thirty 
years  ago,  and  demonstrate  beyond  a  doubt  that  combination 
through  agreement  or  pool  arrangements,  where  there  is  no 
merging  of  ownership  or  ownership  interest  of  one  concern 
in  the  other,  is  a  persistent  feature  of  modern  industrial  life. 
If  further  proof  of  this  were  required  we  need  only  look 
to  Germany  where  combination  and  concentration  has 
reached  an  even  higher  degree  than  in  this  country.  (An 
Austrian  Consul  reported  to  his  government  that  fifty  men 
controlled  the  finances  and  industries  of  Germany  solely 
through  the  form  of  cartels  and  syndicates,  in  other  words 
through  trade  agreements.) 

It  is  hopeless,  then,  absolutely  to  forbid  business  men,  or 


THE  MIDDLEMAN  303 

any  other  class  of  men,  to  agree.  The  more  intelligent  and 
efficient  a  man  is  the  more  likely  he  is  to  reach  an  under- 
standing with  others  engaged  in  the  same  profession  or  trade. 
Try  it  on  yourself.  How  would  you  like  to  be  haled  to 
court  just  because  you  had  agreed  on  some  detail  of  business 
policy  with  other  men?  The  Congressmen  who  so  suspi- 
ciously questioned  prominent  business  men  who  appeared 
before  them  as  to  just  how  far  these  and  other  business  men 
were  in  the  habit  of  agreeing  among  themselves  went  out 
from  the  committee  rooms  and  reached  understandings  with 
other  Congressmen  as  to  pending  legislation. 

The  Sherman  Law,  strictly  construed,  would  prevent  an 
association  of  merchants  from  exchanging  information  val- 
uable to  every  member.  It  has  been  held  to  be  unlawful 
for  a  number  of  mills  to  have  a  common  selling  agent.  As- 
sociations of  farmers  having  for  their  purpose  more  sys- 
tematic marketing  of  their  products  have  been  threatened 
with  the  terrors  of  the  law.  It  is  probably  unlawful  for 
fire  insurance  companies  to  maintain  a  common  survey  of- 
fice to  report  upon  the  construction  of  buildings  and  the  haz- 
ards, physical  and  moral,  involved  in  insuring  them.  Coal 
and  ice  dealers,  who,  in  order  to  lessen  the  costs  of  delivery, 
have  divided  the  territory,  have  been  branded  as  criminals. 
The  purpose  of  all  these  agreements  is  the  elimination  of 
waste.  If  they  are  not  allowed  the  cost  of  doing  business 
is  increased,  and  in  the  long  run  the  consumer  pays. 

It  is  human  nature,  and  especially  modern  human  nature, 


304  SOCIAL  UNREST 

to  reach  «nderstandings,  or  agreements,  with  our  fellow 
men.  But  when  these  understandings  adversely  affect  the 
lives  of  countless  other  fellow  men  what  is  to  be  done  about 
it?  Publicity  is  the  thesis  of  these  articles.  We  have  seen 
that  the  tendency  in  large  affairs  is  toward  publicity.  Why 
not  allow  business  men  to  make  agreements,  provided,  how- 
ever, that  these  agreements,  to  be  legal,  be  filed  publicly  with 
some  government  body?  One  thing  is  certain,  that  great 
benefits  would  follow  from  the  mere  publicity  given  to  the 
filing  of  these  instruments. 

It  may  be  objected  that  to  permit  business  men  to  file 
trade  agreements  would  merely  be  licensing  them  to  raise 
their  prices  to  the  already  overburdened  consumer.  But  do 
these  men  not  get  together  now  and  exact  all  they  can? 
How  much  better  it  would  be  if  their  agreements,  now 
wholly  secret,  were  made  public?  For  if  all  these  agree- 
ments are  made  public  they  cannot  exist  very  long  unless 
they  are  legitimate  and  needful.  In  any  industry  the  weak 
member,  who  is  living  on  credit,  who  is  reckless,  and  has 
nothing  to  lose,  is  the  one  who  cuts  prices  to  the  bone  and 
forces  the  others  to  follow.  No  one  wants  ruinous  compe- 
tition. In  the  case  of  one  of  the  combinations  now  under 
attack  by  the  government  it  is  admitted  in  the  government's 
own  papers  that  before  the  combination  was  formed  goods 
were  being  sold  below  cost,  so  ruinous  was  the  competition. 
Such  competition  must  necessarily  result  in  agreement  or  in 
monopoly.  In  cases  such  as  these,  agreements  of  a  certain 


THE  MIDDLEMAN  305 

nature  are  needful  and  reasonable.  But  if  business  men 
feel  they  must  put  a  brake  upon  the  laws  of  ruinous  compe- 
tition, let  them  do  so  openly  and  present  their  agreements  to 
the  government  for  inspection  and  supervision. 

But  would  it  not  be  possible  for  men  to  continue  to  form 
secret  agreements  in  addition  to  those  submitted  to  the  gov- 
ernment for  proper  publicity  and  reasonable  supervision? 
Such  a  thing  is  conceivable,  but  the  great  present  motive 
for  doing  it  would  be  gone.  Any  study  of  the  corporation 
and  economic  history  of  this  country  will  show  that  the 
chief  motive  for  pools  and  agreements  has  been  to  prevent 
ruinous  competition  which  is  necessarily  wasteful  and  ex- 
pensive. But  the  Sherman  Law  does  not  recognize  the  le- 
gality of  agreements  even  to  this  end.  If  such  necessary 
agreements  were  legalized,  there  would  be  little  motive  for 
forming  other  agreements;  and  moreover,  a  strong  Federal 
Commission  on  Interstate  Trade  would  be  able  to  ferret  out 
such  secret  compacts  as  might  be  made,  a  task  which  is  be- 
yond the  powers  of  the  Attorney-General. 

It  may  be  suggested  that  this  body  would  be  overwhelmed 
with  agreements.  But  these  agreements  are  now  in  force. 
The  public  would  not  suffer  more  if  they  were  made  openly. 
There  are  less  than  500  corporations  doing  a  business  of 
$5,000,000,  and  a  vast  number  of  combinations  of  various 
descriptions  are  purely  local.  These  could  be  cared  for  by 
state  and  city.  Certainly  if  the  Federal  Government  set 
the  pace  by  requiring  complete  publicity  in  regard  to  all 


306  SOCIAL  UNREST 

interstate  agreements,  the  states  and  cities  would  follow  its 
examples  in  regard  to  combinations  within  their  own  bor- 
ders. Meanwhile  the  Commission  would  be  passing  judg- 
ment upon  them. 

It  is  secrecy  which  works  for  evil.  If  business  men  form 
a  pool  or  syndicate  which  is  not  unfair  to  the  public  then  it 
can  stand  the  light  of  day.  If  it  is  harmful,  the  publicity 
attending  the  filing  of  details  would  so  arouse  public  opin- 
ion, even  if  there  were  no  supervisory  power  to  operate 
against  it,  that  the  agreement  would  soon  become  void.  The 
force  of  public  opinion  would  work  more  or  less  automati- 
cally to  keep  trade  agreements  within  wholesome  lines. 

Even  under  the  present  haphazard  method  of  regulating 
combinations  by  law  suit  the  element  of  publicity  has  proven 
of  great  value.  The  mere  threat  of  the  Department  of 
Justice  to  sue  certain  combinations  after  investigating  their 
practices  and  telling  the  public  through  the  newspapers  of 
the  essential  features  of  such  practices  has  served  in  several 
instances  to  end  the  evil  practices.  The  electric-lamp  pool 
did  not  carry  its  case  to  the  highest  courts  after  the  fact 
that  its  members  discriminated  against  buyers  had  been 
brought  to  the  light  in  the  lower  courts.  It  is  further  re- 
ported that  the  photographic  supply  trust,  against  which  no 
suit  at  all  has  yet  been  brought,  has  agreed  to  give  up  its 
practice  of  forcing  customers  to  buy  all  or  none  of  their 
supplies  from  it.  Publicity  brought  about  this  result. 

Publicity  is  a  sharp  sword  that  cuts  deep.     In  a  great 


THE  MIDDLEMAN  307 

city  where  the  dealers  in  food  products  were  supposed  to 
have  an  agreement  to  keep  up  prices,  a  semi-public  body  saw 
to  it  that  for  a  period  of  time  the  prices  of  all  foodstuffs 
were  regularly  published  in  the  newspapers.  The  result 
was  a  sudden  drop  in  prices  on  the  part  of  the  dealers. 

The  problem  of  cheap  production  of  manufactured  goods 
has,  broadly  speaking,  been  solved.  Improvements  in  farm 
machinery  and  better  methods  in  farming  tend  toward 
cheaper  production  of  agricultural  products.  The  problem 
of  to-day  is  to  secure  cheaper  distribution  of  these  products 
to  the  consumers.  It  cannot  be  solved  by  throwing  hin- 
drances and  obstacles  in  the  way  of  the  producers.  On  the 
contrary,  every  consideration  of  policy  and  good  sense  de- 
mands that  they  be  permitted  to  eliminate  all  possible  waste 
and  duplication  of  service. 

The  trust  problem  is  a  big  one.  Men  are  afraid  of  it. 
They  tremble  before  it.  Many  believe  combinations  must 
increase  and  wax  greater  and  greater.  But  many  of  the 
greatest  combinations  in  this  country  have  waxed  mighty, 
not  because  of  natural  advantages  or  increased  efficiency  but 
because  of  special  privileges  or  because  of  predatory  or  pi- 
ratical methods. 

If  competitors  were  permitted  to  make  reasonable  trade 
arrangements  in  regard  to  prices  and  output,  the  same  to  be 
supervised  by  a  competent  public  body,  "  it  could  no  longer 
be  claimed,"  says  Samuel  Untermeyer,  "  that  the  trust,  with 
its  attendant  evils  of  stock  watering,  closing  of  factories, 


308  SOCIAL  UNREST 

oppression  of  competitors,  and  the  many  other  attendant 
wrongs  of  permanent  combination,  is  the  only  alternative. 
The  temporary  character  of  these  agreements,  the  fact  that 
each  party  continues  to  operate  his  own  plant  independently 
of  the  others,  and  gets  exclusively  the  benefit  of  his  own 
economies  and  superior  management,  and  that  competition 
on  prices  between  the  parties  may  be  resumed  at  the  ex- 
piration of  the  agreement,  all  assure  the  use  of  the  most 
modern  methods  and  the  continued  effort  to  cheapen  produc- 
tion and  to  improve  the  quality  of  the  product." 

Many  of  the  trusts  have  been  defeated  in  the  courts  where 
the  Sherman  Law  was  invoked  against  them,  and  many  have 
made  overtures  to  the  Government  to  give  up  methods  which 
were  piratical  and  predatory  and  re-establish  fair  play  and 
open  markets.  These  overtures  came  after  the  Govern- 
ment had  given  the  fullest  publicity  to  the  unfair  methods. 
But  the  Department  of  Justice  can  reach  only  a  fraction  of 
these  combinations,  for,  as  a  rule,  a  lawsuit  requires  years 
to  settle.  This  objection  is  serious,  if  not  fatal. 

Publicity  must  be  applied  by  a  commission,  and  it  will 
then  be  found  that  as  wrongful  methods  of  competition  dis- 
appear before  the  light,  in  which  they  cannot  thrive,  much  of 
the  dreaded  tendency  toward  the  concentration,  consolida- 
tion, and  centralization  of  our  industries  will  dissolve  into 
thin  air. 


XXIV 
THE  WIDENING  VISION 

It  seemed  superficially  evident  that  in  a  democracy  labor 
would  naturally  have  the  power  to  bargain  and  contract  to 
its  own  advantage.  But  as  recently  as  1913  Mr.  P.  U. 
Kellogg  pointed  out  in  the  Political  Science  Quarterly 
(xxviii,  594-606)  that  employer  and  employee  alike  were 
subject  to  economic  forces  beyond  their  control  and  that  in 
consequence  that  kind  of  blind  struggle  resulted  which  is 
unavoidable  "  when  the  fabric  of  fair  play  is  not  strong 
enough  or  well  enough  devised  to  stand  the  tension."  But 
even  before  the  great  war  began  the  outlook  was  widening. 

A.      LABOR   RECOGNIZING   ITS   RELATIONSHIPS  1 

W.  L.  MACKENZIE  KING 

Before  America  or  Africa  was  discovered,  or  the  Orient 
was  explored,  men  and  women  employed  in  the  hand  and 
home  industries  of  Europe  had  little  occasion  for  thought 
concerning  the  migrations  of  peoples  from  foreign  lands  or 
the  investment  of  capital  abroad.  In  Industry  limited  by 
hand  tools  and  human  energy,  there  was  no  need  of  concern 
on  Labor's  part  because  of  the  constant  reduction  toward  a 
single  act  in  a  single  process  which  modern  invention,  with 
its  use  of  machinery  and  natural  powers,  its  subdivision  of 

1  "  Industry  and  Humanity,"  pp.  53-55. 

309 


310  SOCIAL  UNREST 

processes,  and  division  of  labor  within  a  single  process,  has 
made  a  distinctive  feature  of  the  Industry  of  to-day.  Neither 
could  there  be  the  same  indifference  to  the  skill  of  the 
worker  as  such,  as  impossible  where  numbers  may  be  a 
more  important  consideration  than  even  industrial  equip- 
ment. 

It  has  been  the  ever-increasing  mobility  and  fluidity  of 
both  Labor  and  Capital  which  has  compelled  a  recognition 
of  the  world-wide  nature  of  Competition  under  modern  in- 
dustrial development.  Finding,  wherever  there  was  human 
life,  that  there  also  was  the  possibility  of  increased  compe- 
tition in  the  struggle  for  existence,  Labor,  through  unremit- 
ting efforts  to  fortify  itself,  has  become  conscious  of  the 
world-wide  nature  of  this  force.  Like  an  onward  surf,  the 
tide  of  human  life  has  surged  toward  industrial  opportunity. 
Labor,  in  its  thought  of  self,  has  been  compelled  to  see  that 
it  must  have  regard  for  Humanity  as  a  whole. 

Labor  has  come  to  recognize  its  interests  as  akin  to  those 
of  Humanity,  because  most  workmen  no  longer  are  owners 
of  their  own  tools,  no  longer  obtain  employment  in  their  own 
shops,  no  longer  work  upon  materials  which  for  the  time 
being  are  their  own,  and  no  longer  sell  the  products  of  their 
own  labor.  They  find  themselves,  on  the  contrary,  pos- 
sessed of  little  save  their  skill  and  energy;  human  beings  who 
work  with  equipment  which  belongs  to  others,  in  establish- 
ments owned  by  others,  upon  materials  the  property  of 
others,  and  who  leave  to  others  the  disposition  of  the  wealth 


THE  WIDENING  VISION  311 

they  have  helped  to  produce.  Workingmen  and  women 
have  come  to  realize  that,  in  the  ever-changing  conditions  of 
Industry,  they  exist  as  atoms  in  a  human  tide  so  vast,  and 
subject  to  such  ceaseless  ebb  and  flow,  that  the  effort  to 
secure  collective  stability  becomes  the  first  requisite  of  ex- 
istence itself. 

B.      THE   RIGHT  TO   ORGANIZE  2 

JOHN  D.  ROCKEFELLER,  JR. 

It  is  just  as  proper  and  advantageous  for  Labor  to  asso- 
ciate itself  into  organized  groups  for  the  advancement  of  its 
legitimate  interests  as  for  Capital  to  combine  for  the  same 
objects.  Such  associations  of  Labor  manifest  themselves  in 
collective  bargaining,  in  an  effort  to  secure  better  working 
and  living  conditions,  in  providing  machinery  whereby 
grievances  may  easily  and  without  prejudice  to  the  individual 
be  taken  up  with  the  Management.  Sometimes  they  pro- 
vide benefit  features,  sometimes  they  seek  to  increase  wages, 
but  whatever  their  specific  purpose,  so  long  as  it  is  to  pro- 
mote the  well-being  of  the  employes,  having  always  due  re- 
gard for  the  just  interests  of  the  employer  and  the  public, 
leaving  every  worker  free  to  associate  himself  with  such 
groups  or  to  work  independently,  as  he  may  choose,  they  are 
to  be  encouraged. 

But  organization  is  not  without  its  dangers.  Organized 
Capital  sometimes  conducts  itself  in  an  unworthy  manner, 

2 "  Representation   in   Industry,"  pp.   13-15. 


312  SOCIAL  UNREST 

contrary  to  law,  and  in  disregard  of  the  interest  both  of 
Labor  and  the  public.  Such  organizations  cannot  be  too 
strongly  condemned  or  too  vigorously  dealt  with.  Although 
they  are  the  exception,  such  publicity  is  generally  given  to 
their  unsocial  acts  that  all  organizations  of  Capital,  however 
rightly  managed  or  broadly  beneficent,  are  thereby  brought 
under  suspicion. 

Likewise  it  sometimes  happens  that  organizations  of  Labor 
are  conducted  without  just  regard  for  the  rights  of  the  em- 
ployer or  of  the  public;  methods  and  practices  are  adopted 
which,  because  unworthy  or  unlawful,  are  deserving  of  pub- 
lic censure.  Such  organizations  of  Labor  bring  discredit 
and  suspicion  upon  other  organizations  which  are  legitimate 
and  useful,  just  as  is  the  case  with  improper  organizations  of 
Capital,  and  they  should  be  similarly  dealt  with. 

We  ought  not,  however,  to  allow  the  occasional  failure  in 
the  working  of  the  principle  of  the  organization  of  Labor  to 
prejudice  us  against  the  principle  itself,  for  the  principle  is 
fundamentally  sound. 

In  the  further  development  of  the  organization  of  Labor 
and  of  large  business,  the  public  interest  as  well  as  the  in- 
terest of  Labor  and  of  Capital  will  be  furthest  advanced  by 
whatever  stimulates  every  man  to  do  the  best  work  of  which 
he  is  capable;  by  a  fuller  recognition  of  the  common  inter- 
ests of  employers  and  employed ;  and  by  an  earnest  effort  to 
dispel  distrust  and  hatred  and  to  promote  good-will. 

Labor  unions  have  secured  for  Labor  in  general  many 


THE  WIDENING  VISION  313 

advantages  in  hours,  wages  and  standards  of  working  con- 
ditions. A  large  proportion  of  the  workers  of  the  country, 
however,  are  outside  of  these  organizations,  and  unless  some- 
how represented  are  not  in  a  position  to  bargain  collectively. 
Therefore,  representation  of  Labor  to  be  adequate  must  be 
more  comprehensive  and  all  inclusive  than  anything  thus  far 
attained. 

Representation  on  the  employers'  side  has  been  developed 
through  the  establishment  of  trade  associations,  the  purpose 
of  which  is  to  discuss  matters  of  common  interest  and  to  act 
in  so  far  as  is  legally  permissible  and  to  the  common  advan- 
tage, along  lines  that  are  generally  similar.  But  here  also 
representation  is  inadequate.  Many  employers  do  not  be- 
long to  employers'  associations. 

C.     THE  EMANCIPATION  OF  LABOR 
WOODROW  WILSON 

"  The  workingmen  of  America  have  been  given  a  ver- 
itable emancipation,  by  the  legal  recognition  of  a  man's  la- 
bor as  part  of  his  life,  and  not  a  mere  marketable  commod- 
ity; by  exempting  labor  organizations  from  processes  of  the 
courts  which  treated  their  members  like  fractional  parts  of 
mobs  and  not  like  accessible  and  responsible  individuals;  by 
releasing  our  seamen  from  involuntary  servitude ;  by  making 
adequate  provision  for  compensation  for  industrial  accidents ; 
by  providing  suitable  machinery  for  mediation  and  concilia- 
tion in  industrial  disputes;  and  by  putting  the  Federal  De- 


SOCIAL  UNREST 

partment  of  Labor  at  the  disposal  of  the  workingmen  when 
in  search  of  work.  .  .  . 

"We  must  hearten  and  quicken  the  spirit  and  efficiency 
of  labor  throughout  our  whole  industrial  system  by  every- 
where and  in  all  occupations  doing  justice  to  the  laborer, 
not  only  by  paying  a  living  wage  but  also  by  making  all  the 
conditions  that  surround  labor  what  they  ought  to  be.  And 
we  must  do  more  than  justice.  We  must  safeguard  life  and 
promote  health  and  safety  in  every  occupation  in  which  they 
are  threatened  or  imperilled.  That  is  more  than  justice, 
and  better,  because  it  is  humanity  and  economy.  .  .  . 

"  We  hold  very  definite  ideals.  We  believe  that  the  en- 
ergy and  initiative  of  our  people  have  been  too  narrowly 
coached  and  superintended;  that  they  should  be  set  free,  as 
we  have  set  them  free,  to  disperse  themselves  throughout  the 
nation;  that  they  should  not  be  concentrated  in  the  hands 
of  a  few  powerful  guides  and  guardians,  as  our  opponents 
have  again  and  again,  in  effect  if  not  in  purpose,  sought  to 
concentrate  them.  We  believe,  moreover, —  who  that  looks 
about  him  now  with  comprehending  eye  can  fail  to  believe? 
—  that  the  day  of  Little  Americanism,  with  its  narrow  hori- 
zons, when  methods  of  '  protection  '  and  industrial  nursing 
were  the  chief  study  of  our  provincial  statesmen,  are  past 
and  gone  and  that  a  day  of  enterprise  has  at  last  dawned  for 
the  United  States  whose  field  is  the  wide  world." 


XXV 
MANAGEMENT 

As  business  improved  in  ethics  management  emerged  into 
new  prominence  apart  from  ownership.  Great  corporations 
gave  over  to  their  executives  sometimes  almost  unlimited  au- 
thority. A  new  type  of  efficient,  public-spirited,  and  even 
socially  minded  leadership  developed. 

A.      THE   NEW  TYPE   OF   MANAGER 

E.  B.  GOWIN 

The  control  of  men  is  the  real  problem  of  every  organi- 
zation. Ninety-seven  per  cent,  of  a  group  of  manufactur- 
ers interviewed  declare  it  their  most  serious  difficulty;  scien- 
tific managers  agree  that  systematic  "  soldiering "  is  the 
menace  of  industry;  psychologists  are  convinced  that  the 
average  man,  without  injury,  could  increase  his  output  by  a 
half;  observation  and  investigation  re-enforce  the  same  truth, 
that  progress  waits  upon  men  and  is  thus  dependent  upon 
executive  ability. 

This  need  for  executive  ability  is  fundamental  in  all  or- 
ganized effort.  Wolves  have  a  head  of  the  pack,  mustangs 
in  the  Southwest  group  themselves  under  some  powerful 
male,  sheep  follow  the  bellwether.  Monkeys,  if  we  may  be- 
lieve travelers'  accounts,  on  their  raids  or  marches  have  gen- 


316  SOCIAL  UNREST 

eral  and  staff.  The  reason  is  evident.  Leaders  make  for 
effective  group  action,  and  whether  it  be  animal,  herd,  rob- 
ber horde,  war  machine,  or  department  store,  effective  group 
action  in  the  struggle  for  existence  means  survival. 

Opportunity  for  the  executive,  now  as  heretofore,  treads 
hard  upon  ability.  The  centralization  of  industry,  the 
growth  of  cities,  the  increased  facility  of  communication,  the 
'development  of  the  modern  state  itself,  have  alike  socialized 
men,  interlaced  their  interests,  and  expanded  the  boundaries 
of  their  collective  life.  The  village  squire  merges  into  the 
representative,  to  appear  before  whose  numerous  constitu- 
ents even  requires  much  mileage  and  leathern  lungs;  stage- 
coach driver  and  keeper  of  the  toll  road  have  become  railroad 
officials;  peddler  and  money  lender  are  transformed  into 
department-store  manager  and  corporation  director,  the  one 
numbering  his  employees  by  the  hundreds,  his  customers  by 
tens  of  thousands,  and  the  other  with  his  finger  on  many  of 
our  purses;  handicraftsman,  swept  by  the  new  currents  of 
business,  becomes  captain  of  industry,  the  term  manufacture 
(manu,  by  hand,  factura,  a  making;  literally,  a  making  by 
hand)  to-day  as  a  fossil  revealing  the  surges  of  an  Indus- 
trial Revolution.  In  short,  wherever  one  may  choose  to 
look,  tremendous  undertakings  are  being  rolled  up  and  await 
direction.  To  fail  here  is  to  be  crushed  under  the  load  of 
civilization. 

With  growth  in  size  has  come  increase  in  complexity.  It 
is  no  homogeneous  population  to  which  the  present-day  ex- 


MANAGEMENT  317 

ecutive  appeals.  The  old  North-European  stock,  men  from 
Ireland,  Scandinavia,  and  Germany,  no  longer  possesses 
America  for  itself,  but  must  compete  and  mingle  with  the 
sons  of  Croatia  and  Serbia,  Bulgaria  and  Macedonia.  When 
these  rub  shoulders  within  the  same  organization,  the  racial 
difference  in  itself  is  liable  to  work  demoralization  through 
coteries  and  cliques.  Moreover,  the  skilled  are  found  with 
the  unskilled,  the  strong  with  the  weak,  the  cultured  with 
the  grossly  ignorant;  and  machinery,  pitting  mechanism 
against  man  and  mechanism  against  mechanism,  complicates 
still  further  these  human  differences.  Utilities  are  being 
produced,  transferred,  distributed,  and  consumed  under  con- 
ditions continually  growing  more  intricate.  And  this  af- 
fects not  alone  factory  foreman  or  sales  manager,  but 
preacher,  editor,  politician,  agitator.  They  all  give-and-take 
within  the  social  mass.  For  their  diverse  ends  they  have 
builded  organizations  without  number,  more  complex  than 
any  timepiece.  In  such  heterogeneity  are  vast  advantages, — 
else  it  would  not  have  come  about, — but  it  requires  skill  to 
realize  these  in  practice. 

Another  element  involved  is  speed,  a  comparatively  mod- 
ern requirement.  The  ancient  civilizations,  Egypt,  Persia, 
India,  China,  as  the  savage  and  patriarchal  society  which 
preceded  them,  gave  promise  of  an  advancement  they  some- 
how failed  to  fulfill.  Shackle  upon  shackle  —  communism 
in  property  and  industry;  physical,  economic,  and  social  iso- 
lation ;  reverence  for  past  achievements ;  rulership  of  the  old ; 


318  SOCIAL  UNREST 

hypertrophy  of  institutionalism  —  stagnated  these  ancient 
peoples.  Once  on  the  path  of  progress,  however, —  in  itself 
a  great  achievement, —  with  competition  and  discussion,  the 
forward  look,  the  tentative  attitude,  and  the  future  brightly 
painted,  men  began  to  feel  a  thrill  in  motion.  Such  is  in- 
creasingly true  in  our  day.  The  inventor  scarce  has  per- 
fected one  device  before  he  is  urged  on  by  fresh  demands; 
the  politician  in  drafting  a  good  bill  has  won  opportunity  to 
draft  better  bills;  the  pleased  scientist,  contemplating  his 
new  generalization,  is  admonished  to  make  it  shorter  and 
more  comprehensive;  industry,  pressed  hard  by  labor  for 
higher  wage,  capital  for  increased  interest,  landowner  for 
more  rent,  and  management  for  greater  profit,  vibrates  with 
energy,  its  individual  workman  speeded  up,  its  organization 
adjusted  so  that  from  raw  product  to  shipping  room  the 
material  flows  without  congestion,  its  capital  made  active 
through  frequent  turnover.  Yet  to  work  rapidly,  to  meet 
the  new  and  subdue  it  promptly,  in  the  individual  are  char- 
acteristics of  an  expert;  with  huge  and  intricate  organization, 
a  task  for  super-man. 

Much  more  comprehensive  than  size  of  organization,  its 
heterogeneity,  or  the  required  speed  of  manipulation  is  the 
demand  for  effectiveness  in  its  operation.  In  fact,  size,  com- 
plexity, and  speed  are  in  themselves  but  means  to  this  larger 
end,  efficiency.  Fundamentally,  what  is  here  involved  is 
nothing  less  than  success  in  the  struggle  for  existence,  the 
prime  consideration  why  any  creature  should  limit  its  indi- 


MANAGEMENT  319 

viduality  in  order  to  lead  the  collective  life.  Ants  exhibit 
no  Hobbesian  war,  but  instead  dwell  in  colonies  together; 
prairie  dogs  live  in  towns;  wolves  hunt  in  packs;  deer,  cattle, 
buffaloes,  and  horses  each  group  themselves  into  herds.  Sav- 
ages, in  their  clans,  phratries  and  tribes,  indicate  one  stage 
in  the  transition  toward  Greek  city  state,  feudal  holding, 
English  manor,  German  free  city,  workmen's  gild ;  and  these 
in  turn  are  but  the  forerunners  of  present-day  municipali- 
ties, neighborhoods,  trade-unions,  political  parties  and  cor- 
porations. Why  have  men  thus  persistently  led  the  col- 
lective life?  Because  no  principle  is  more  basic  than  desire 
for  greatest  gain  with  least  effort;  —  men  through  com- 
bined actions  can  accomplish  what  individually  is  impossible, 
they  can  get  more  as  members  of  an  organization  than  they 
could  as  individuals. 

To  fulfill  this  collective  ideal  of  effectiveness  requires,  of 
course,  concerted  effort;  members  must  work  together.  In 
the  securing  of  such  action,  we  note,  all  men  are  not  of  equal 
value,  and  herein  lies  the  origin  of  leadership.  Men  by 
nature  and  nurture  are  unlike,  quite  in  keeping  with  most 
natural  phenomena,  their  qualities  exhibiting  a  normal  fre- 
quency distribution.  Some  few  are  geniuses,  some  few  are 
cranks,  most  are  mediocres.  Now  working  together  requires 
a  certain  degree  of  similarity;  since  mutually  antagonistic 
men  could  never  carry  out  a  common  enterprise,  collective 
action  rests  upon  proper  conformity  to  type.  Here  arises 
the  problem  of  the  genius  and  the  fool ;  they  are  unlike  most 


320  SOCIAL  UNREST 

men,  they  insist  upon  retaining,  nay,  more  than  that,  upon 
realizing,  their  unlikenesses ;  and  it  is  difficult  to  distinguish 
clearly  one  from  the  other.  The  common  criminal  it  is 
easy  to  lock  up,  yet  what  does  the  world  not  owe  to  Socra- 
tes, Jesus,  Luther,  Darwin?  So  stoned  they  the  prophets. 
Selecting  the  right  variate  and  cleaving  only  to  him,  thus 
becomes  the  chief  business  of  the  common  man,  for  such 
variates  are  immensely  helpful. 

The  particular  direction  in  which  his  helpfulness  is  shown 
depends  upon  the  group  need.  With  enemies  round  about, 
the  strong  arm  and  steady  eye  have  won  respect.  When 
unusual  calamities,  uncanny  visitations,  and  magic  portents 
terrorize  simple  faith,  he  leads  who  best  can  peer  into  the 
unknown,  placate  the  unseen,  and  stiffen  troubled  souls. 
With  men's  energies  harnessed  to  work,  the  materialistic 
conception  of  history  widely  held,  and  abundant  natural 
resources  waiting  to  be  exploited,  authority  passes  to  the 
business  man.  Or  again,  a  wider  socialization  emphasizes 
new  alignments,  elevating  among  men  the  applied  scientist, 
the  conservationist,  the  teachers  of  brotherhood,  social  jus- 
tice, and  other  phases  of  applied  idealism,  as  is  being  done 
in  our  own  day.  Be  the  particular  need  what  it  will,  he 
who  best  aids  his  group  in  realizing  it  is  the  helpful  variate, 
the  successful  executive. 

It  would  follow  that  leadership  assumes  maximum  impor- 
tance in  times  when  the  organization  is  under  stress.  Herds 
of  cattle  feeding  quietly  represent  thoroughgoing  equality; 


MANAGEMENT  321 

let  danger  threaten,  and  forward  stalks  the  defiant  bull. 
The  arrival  of  a  stranger  in  the  Indian  camp  finds  many 
hands  pointing  the  way  to  the  chief's  tent.  War  clouds 
gathering  in  the  East  permitted  Themistocles  to  break  with 
all  tradition  by  making  Athens  the  greatest  naval  power  in 
Hellas.  It  was  when  government  of  the  people  by  the 
people,  and  for  the  people  was  threatened  that  Lincoln 
wielded  a  power  such  as  few  Presidents  have  ever  possessed. 
Periods  of  uncertainty,  of  transition,  of  struggle  intensify  the 
group  needs,  and  in  them  have  all  social  saviors  been  born. 

To  whom  shall  we  to-day  grant  this  title?  To  him  best 
able  to  bear  the  burden  of  a  large  organization,  most  versa- 
tile in  dealing  with  its  complexities,  most  adroit  in  pushing 
it  at  top  speed,  and  most  effective  in  guaranteeing  its  mem- 
bers greatest  returns  for  least  effort.1 

That  large  salaries  should  be  paid  for  such  managers  was 
inevitable.  That  they  should  acquire  a  vested  interest  in 
the  business  they  managed  was  naturally  frequent.  That 
they  should  even  exercise  large  powers  without  hindrance 
was  not  uncommon,  and  it  is  of  this  that  ex-President  Eliot 
speaks. 

B.      THE   REWARD   OF    MANAGEMENT 

C.  W.  ELIOT 

A  great  capital  at  the  disposal  of  a  single  will  confers  on 
its  possessor  power  over  the  course  of  industrial  develop- 
ment, over  his  fellowmen,  and  sometimes  over  the  course  of 
great  public  events  like  peace  or  war  between  nations.  For 

1  "  The  Executive  and  His  Control  of  Men":  pp.  1-7. 


322  SOCIAL  UNREST 

some  natures  it  is  a  real  satisfaction  to  be  thus  a  sort  of 
Providence  to  multitudes  of  men  and  women,  able  at  pleas- 
ure to  do  them  good  or  harm,  to  give  them  joy  or  pain,  and 
in  position  to  be  feared  or  looked  up  to.  Great  capital  di- 
rected by  one  mind  may  be  compared  to  the  mill  pond  above 
the  dam,  which  stores  power  subject  to  the  mill  owner's  di- 
rection. There  is  pleasure  and  satisfaction  in  directing  such 
a  power;  and  the  greater  the  power,  the  greater  may  be  the 
satisfaction.  In  giving  this  direction  the  great  capitalist 
may  find  an  enjoyable  and  strenuous  occupation.  For  a 
conscientious,  dutiful  man  a  great  sense  of  responsibility  ac- 
companies the  possession  of  power,  and  this  sense  of  respon- 
sibility may  become  so  painful  as  to  quite  overcome  all  en- 
joyment of  the  power  itself ;  but  nevertheless  we  cannot  but 
recognize  the  fact  that  the  exercise  of  power  gives  pleasure 
and  satisfaction  without  this  draw-back  to  men  of  arbitrary 
temperament,  or  of  an  inconsiderate  disposition  which  takes 
no  account  of  the  needs  or  wishes  of  others. 

The  most  successful  businesses  are  those  conducted  by  re- 
markably intelligent  and  just  autocrats;  and  probably  the 
same  would  be  true  of  governments,  if  any  mode  had  been 
invented  of  discovering  and  putting  in  place  the  desirable 
autocrats.  The  prevailing  modes  of  discovery  and  selection, 
such  as  hereditary  transmission,  or  election  by  a  Pretorian 
guard  or  an  army,  have  been  so  very  unsuccessful  that  au- 
tocracy as  a  mode  of  government  has  justly  fallen  into  dis- 
repute. In  business  enterprises  the  existing  modes  of  discov- 


MANAGEMENT  323 

ering  and  selecting  autocrats  seem  to  be  better  than  in  gov- 
ernments; for  autocracy  in  business  is  often  justified  by  its 
results.  The  autocrat  in  business  is  almost  invariably  a 
capitalist ;  and  when  he  possesses  great  riches  he  may  be,  and 
often  is,  highly  serviceable  to  his  community  or  his  nation 
through  his  beneficial  direction  of  accumulated  and  stored 
power.  Whether  he  himself  wins  satisfaction  through  the 
exercise  of  his  power  depends  on  his  temperament,  disposi- 
tion, and  general  condition  of  physical  and  moral  health. 
When  great  riches  are  stored  up  in  possession  of  one  man, 
or  one  family,  the  power  which  resides  in  them  can  be  di- 
rected by  one  mind  into  that  channel,  or  those  channels, 
where  it  can  be  made  most  effective,  and  this  effective  direc- 
tion it  is  which  brings  out  in  high  relief  the  usefulness  of 
great  riches. 

What  are  ordinarily  called  benefactions  —  that  is,  gifts 
for  beneficial  uses  —  are,  therefore,  by  no  means  the  only 
benefits  very  rich  men  can  confer  on  the  community  to  which 
they  belong.  Any  man  who,  by  sound  thinking  and  hard 
work,  develops  and  carries  on  a  productive  industry,  and  by 
his  good  judgment  makes  that  industry  both  profitable  and 
stable,  confers  an  immense  benefit  on  society.  This  is  indeed 
the  best  outcome  of  great  riches.2 

2  "  Great  Riches,"  pp.  15-17. 


324  SOCIAL  UNREST 

C.      THE   SUCCESSFUL    BUSINESS    MAN 

F.  W.  TAUSSIG 

The  successful  business  man  is  the  backbone  of  the  well-to- 
do  and  possessing  classes  of  modern  society.  His  ambition 
is  to  accumulate,  not  merely  to  earn  a  living.  The  lawyer, 
the  physician,  the  teacher,  is  reasonably  content  if  he  suc- 
ceeds in  supporting  and  rearing  a  family  according  to  the 
standards  of  his  class,  and  in  making  some  moderate  pro- 
vision for  the  future ;  though,  being  in  close  association  with 
the  business  set,  he  may  be  infected  also  with  the  fever  of 
accumulation.  But  the  business  man  cannot  escape  that 
infection.  The  aim  of  all  in  his  class  is  to  gain  more  than 
enough  to  support.  To  get  together  a  competence  or  a  for- 
tune is  the  one  test  of  "  success."  He  must  be  able  in  his 
later  days  to  live  at  leisure  on  his  settled  income,  or  at  least 
transmit  to  his  descendants  the  opportunity  of  leisure.  We 
do  not  commonly  think  of  the  money-maker  as  a  person  who 
saves.  Not  infrequently  he  is  a  liberal  spender.  But 
spends  less  than  he  makes.  His  one  aim  is  to  make  a  great 
deal  more  than  he  spends,  and  to  put  it  by.  His  accumula- 
tions, though  they  may  involve  a  little  conscious  sacrifice, 
are  none  the  less  real  savings,  and  constitute  probably  the 
most  important  source  of  the  community's  supply  of  capital. 
Though  no  statistical  or  quantitative  measurement  is  feas- 
ible, it  is  probable  that  the  larger  portion  of  the  extraordi- 
nary growth  of  capital  during  the  last  two  centuries  has  come 
from  the  competence  and  fortunes  of  the  business  class.3 

'"Principles  of   Economics,"  pp.   167-8. 


XXVI 

THE  AWAKENING  MIDDLE 
CLASS  * 

THOMAS  R.  MARSHALL 

The  ancient  battle  cry  of  the  Templars  was  "  God  and 
my  right."  If  this  could  have  come  down  through  the  ages 
as  the  battle  cry  of  mankind  many  evils  might  have  been 
prevented,  for  he  who  contemplates  God  with  His  compro- 
mises and  concessions  between  contending  forces  in  nature 
would  have  been  inevitably  impressed  with  the  great  truth 
that  "  my  right  "  is  not  a  fixed,  definite  and  unbending  privi- 
lege to  be,  to  think  and  to  do  what  I  please.  "  My  right  " 
is  rather  my  duty  to  so  adjust  my  aims  and  my  efforts  as  to 
produce  harmony  in  civil  society. 

Humanity,  striving  for  higher  and  better  things,  particu- 
larly as  exemplified  among  English-speaking  peoples,  soon 
clipped  the  Templars'  motto  into  just  "  my  right."  The 
King  who  foolishly  thought  he  ruled  by  right  divine  and 
that  he  could  do  no  wrong  interpreted  "  my  right  "  to  mean 
"  my  will  "  and  regarded  all  other  forces  of  life  and  society 
as  subservient  thereto. 

1  Reprinted  from  the  New  York  Times,  Sunday,  October  5,  1919, 
by  special  permission. 

325 


326  SOCIAL  UNREST 

Such  a  definition  of  "  my  right "  inevitably  produced  fric- 
tion, such  friction  that  at  Runnymede  the  barons  wrested  the 
great  charter  of  English  liberty  from  their  overlord.  And 
yet  they  learned  but  little.  The  battle  cry  was  still  "  my 
right,"  and  they  assumed  that  all  the  other  wishes  of  man- 
kind were  held  in  bondage  to  their  own ;  and  thus  the  laws 
were  largely  made  for  themselves,  incidentally  for  others. 

With  the  printing  press,  knowledge  came,  and  the  so- 
called  great  middle  class  of  the  world,  more  especially  the 
business  man,  took  charge  of  the  conduct  of  human  affairs 
through  legislative  bodies.  And  still  wisdom  lingered  and 
still  the  cry  was  "  my  right." 

Another,  and  the  greatest  of  evils  in  all  the  history  of 
humankind,  has  taken  place:  the  man  who  thinks  he  works 
exclusively  with  his  hands,  but  who,  if  he  stopped  to  consider 
would  realize  that  his  hands  are  only  doing  what  his  brain 
lays  out  for  him  to  do,  has  marched  upon  the  scene  of  gov- 
ernment. 

Does  wisdom  still  linger  and  is  the  old  cry  of  "  my  right  " 
again  to  be  exemplified  or  attempted  to  be  exemplified  by 
these  men  taking  into  their  hands  the  machinery  of  govern- 
ment and  fixing  by  man-made  laws  the  political,  social  and 
economic  conditions  of  the  world?  Is  it  to  be  a  repetition 
of  the  old  experience  of  humankind, —  "  my  right,"  regard- 
less of  the  other  fellow  ? 

Here  and  there  in  the  long  process  of  the  ages  there  has 
been  a  gleam  of  light  from  individuals  and  from  groups  of 


THE  AWAKENING  MIDDLE  CLASS        327 

men,  and  in  1776  a  theoretical  sun  arose,  called  the  Dec- 
laration of  Independence,  to  shed  its  light  upon  the  world. 
Is  it  to  prove  to  be  a  pale,  anaemic  sun,  or  is  it  to  be  a  glow- 
ing, refulgent,  warming  and  earth-revivifying  source  of 
light  and  heat  and  power? 

The  long,  long  fight  from  John  at  Runnymede  to  Haig 
and  Pershing  in  Flanders  and  in  France  seems  to  have  been 
fought  under  the  battle  cry,  "  my  right,"  and  "  my  right  " 
seems  always  to  have  been  to  seize  the  instruments  of  power 
and  to  wield  them  regardless  of  my  duty  and  regardless  of 
the  rights  of  others. 

If  in  my  own  little  political  or  social  life  I  had  ever  sought 
or  defended  legislative  enactment  for  myself  or  for  any  par- 
ticular group  of  my  fellow-countrymen,  then  I  ought  to  be 
estopped  from  making  this  inquiry:  Has  not  the  hour  struck 
upon  the  dial  of  time  when  the  great  mission  of  English- 
speaking  peoples  and,  more  particularly,  the  great  mission  of 
the  American,  is  to  teach  and  to  live  upon  the  principle  of 
the  mutual  duties  of  men  toward  each  other  and  of  organ- 
ized society  toward  all  its  members? 

No  defense  can  be  made  of  the  past,  seamed,  scarred,  mu- 
tilated and  blackened  by  special  legislation  as  it  has  been. 
What  is  to  be  said  of  the  laws  of  government  which,  defin- 
ing crime,  declare  that  of  two  men  committing  crimes  one 
shall  by  the  law  be  deemed  guilty  and  the  other  by  the  self- 
same law  be  held  innocent?  What  sort  of  a  democratic 
brain  is  it  that  hunts  a  moonshiner  to  his  lair,  arrests,  con- 


328  SOCIAL  UNREST 

victs  and  incarcerates  him  in  a  Federal  prison,  and  elects  to 
the  United  States  Senate  the  man  who  buys  his  product  ? 

Special  legislation  must  necessarily  come  so  long  as  the  old 
cry  of  "  my  right "  remains  the  battle  cry  of  the  Republic 
and  so  long  as  men  are  recognized  as  good  citizens,  at  the 
same  time  separating  themselves  and  their  interests  from  the 
common  weal. 

I  know  what  hot  blood  can  do.  I  know  how  self-defense 
can  rapidly  degenerate  into  willful  murder.  I  can  thor- 
oughly appreciate  how  the  long,  long  years  of  injustice  have 
warped  their  judgment  and  made  vindictive  many  of  our 
citizenry.  I  can  even  sympathize  with  those  who,  having 
been  the  victims  of  special  legislation,  declare  that  now  is 
the  time  to  pay  back  the  grievances  they  have  suffered  in 
legislative  coin  of  like  mintage. 

But  there  are  many  in  this  Republic —  I  think  a  majority 
—  who  have  never  voted  for  any  special  privilege  to  any 
man  or  set  of  men ;  who,  from  the  first  moment  of  their  con- 
scious political  and  social  life,  have  been  convinced  that  the 
never-ending  contest  of  class  against  class,  of  prejudice  against 
prejudice,  of  right  against  right  is  the  most  inimical  thing  in 
the  life  of  the  State. 

Have  we  learned  anything  out  of  the  great  war  through 
which  we  have  just  passed?  Have  we  only  thrown  off  a 
military  autocracy  to  take  up  and  countenance  an  autocracy 
of  either  wealth  or  poverty?  Is  there  enough  calm  and 
deliberate  judgment  and  courage  in  the  Republic  to  take 


THE  AWAKENING  MIDDLE  CLASS       329 

from  Independence  Hall  the  Declaration  and  write  it  upon 
the  life  and  conduct  of  the  Republic? 

Have  not  twenty  centuries  of  Christian  civilization  yet 
taught,  not  as  a  mere  catchword  but  as  the  moving  force  of 
life,  that  no  man  has  a  right  without  having  a  duty  super- 
imposed upon  that  right? 

Are  we  so  blind,  so  childish,  so  impotent  as  to  dream  that, 
if  either  individually  or  by  association  we  convince  ourselves 
that  we  have  certain  rights  and  that  governments  are  or- 
dained among  men,  we  can  get  hold  of  the  government,  to 
assure  us  of  those  rights,  regardless  of  their  effect  upon  our 
fellow-men?  If  so,  instead  of  peace  on  earth  to  men  of 
good-will,  out  of  this  war  there  will  simply  proceed  chaos 
and  disorder,  murder  and  rapine  in  society. 

I  am  an  optimist.  I  have  a  blind  yet  sure  belief  that 
legislative  enactments  will  be  overturned  and  overturned 
until  only  the  right  shall  rule  in  the  world,  and  I  have  a 
blind  belief  that  the  mysterious  workings  of  conscience  will 
affect  the  private  and  individual  life  of  the  citizen  until  a 
like  result  will  be  obtained  in  his  social  and  economic  rela- 
tions with  his  fellow-men. 

Who  is  there  that  dare  deny  that  right  and  duty  are  the 
twin  hand-maidens  who  minister  to  every  thinking  man? 
Who  is  there  that  can  dispute  that  the  Republic  will  not 
long  remain  the  Republic  which  the  Fathers  thought  they 
founded  if  contending  classes  are  to  continually  clamor  for 
their  rights  and  to  be  utterly  oblivious  of  their  duties? 


330  SOCIAL  UNREST 

Are  not  men  well  assured  that  in  the  interests  of  the  com- 
mon good  and  in  the  preservation  of  an  individualistic  Re- 
public, more  and  more  the  individual  citizen  must  consent 
to  modify  and  lessen  what  he  calls  his  right  when  by  so 
doing  he  can  contribute  to  the  welfare  and  happiness  of  his 
fellow-men?  And  is  not  he  a  foolish  man  who  seeks  to 
alter  this  immutable  law  of  God  by  legislative  enactment  of 
the  social  conduct?  And  sooner  or  later  will  he  not  find 
himself  an  outcast? 

Human  nature  is  very  human.  Many  men  will  gladly  do 
by  advice,  admonition  and  reproof  things  which,  if  enacted 
into  law,  they  will  bitterly  resist.  The  never-ending  quar- 
rels between  capital  and  labor  are  getting  nowhere,  and  the 
reason  is  as  plain  as  a  pikestaff  —  each  thinks  of  itself  as  a 
class ;  each  raises  its  battle  cry  "  my  right  " ;  each  stands  and 
glares  at  the  other;  each  knocks  at  the  door  of  Congress, 
importuning,  advising,  suggesting  and  threatening;  each 
takes  advantage  of  the  weakness  and  frailty  of  legislators. 

When  is  there  to  be  a  real,  mutual  partnership  between 
these  contending  forces,  a  partnership  not  of  money  and  of 
hands,  not  of  dividends  and  of  wages,  but  a  partnership  of 
confidence,  respect,  esteem  and  mutual  help? 

When  will  the  employer  open  his  factory,  not  exclusively 
for  profits  but  also  because  he  loves  to  see  what  his  fellow- 
men  can  do  and  because  he  feels  that  it  is  his  duty  to  give 
his  fellow-men  a  chance  in  this  great  Republic?  And  when 
will  the  employe  do  his  work  because  he  loves  to  see  his  fin- 


THE  AWAKENING  MIDDLE  CLASS       331 

ished  product  and  because  he  has  faith  that  out  of  their  joint 
relationship  peace,  prosperity  and  good  order  will  come  to 
the  State? 

It  is  a  sad  commentary  upon  our  civilization,  and  upon  the 
freedom  which  we  have  and  which  we  enjoy,  if  the  sons  of 
God,  garbed  in  human  flesh,  have  become  so  obsessed  with 
their  individual  rights  that  they  are  not  willing  to  stop  and 
consider  their  duty  to  their  fellowmen  and,  having  seen  it, 
lack  the  courage  to  discharge  it. 

Many  who  have  been  unjustly  oppressed  by  legislation  in 
the  past  are  going  to  be  very  slow  to  consent  to  a  change  of 
the  system.  But  the  old  methods  of  legislation  must  stop, 
or  the  Republic  must  die.  The  war,  ostensibly  if  not  really, 
wiped  out  for  us  the  political,  hyphenated  American;  the 
war  will  have  been  in  vain  if  it  shall  not  also  have  wiped  out 
for  us  the  hyphenated,  economic  American,  and  has  not 
taught  us  that,  from  him  who  has  most  to  him  who  has 
least,  as  the  days  go  by,  individual  right  will  grow  less  and 
individual  duty  will  grow  larger. 

How  many  millions  of  times  has  it  been  declared  upon  the 
stump  that  this  was  a  Government  of  equal  and  exact  jus- 
tice for  all  men  and  special  privileges  for  none ! 

It  is  not  needful  for  you  to  go  back  and  point  out  to  me 
the  black  record  of  legislation  which  discloses  this  too  often 
to  have  been  the  perfervid  oratory  of  a  political  campaign. 
It  is  not  needful  for  you  to  show  that  it  has  not  been  kept  in 
substance  or  in  spirit.  Do  not  search  the  record  and  flaunt 


332  SOCIAL  UNREST 

in  my  face  the  innumerable  instances  of  special  privileges 
granted  in  the  Republic. 

I  do  not  like  the  word  "  class."  It  savors  too  much  of 
monarchical  government  —  yet  it  expresses  better  than  any 
other  word  certain  real  conditions  in  American  life. 

There  is  a  great  middle  class  in  America  who  have  had 
nothing  to  do  with  these  special  privileges  otherwise  than 
that  they  happened  to  live  in  the  Republic  when  they  were 
granted.  They  are  not  organized  so  as  to  be  heard  in  the 
halls  of  Congress.  They  constitute  the  backbone  of  the 
Republic.  They  do  not  want  to  form  themselves  into  an 
organization,  but  they  are  rapidly  coming  together,  and  it 
will  not  be  long,  unless  the  plain  truth  is  seen  and  acted 
upon  in  business  and  in  legislation,  until  they,  too,  will  be 
hammering  at  the  doors  of  Congress,  saying,  "  We,  too,  have 
some  rights  in  this  Republic  for  which  we  have  lived  and 
labored  and  which  we  love." 

They,  too,  will  say  to  legislative  bodies,  "  If  you  do  not 
have  courage  enough  to  legislate  exclusively  for  the  Ameri- 
can people,  then  you  are  going  to  legislate  for  us  or  out  you 
go  and  we'll  put  somebody  else  in  who  will."  They  are 
going  to  speak  in  unison,  declaring:  "We  prefer  to  be  just 
plain  Americans  who  ask  nothing  but  justice  for  our  fellow- 
men  in  the  same  measure  that  justice  is  meted  out  to  us  — 
but  unless  the  clamor  for  special  legislation  to  enforce  indi- 
vidual or  class  rights  ceases,  we,  too,  are  going  to  be  a  class 
demanding  to  be  heard  and  cared  for."  And  they  are  going 


333 

to  say  in  the  social,  economic  life  of  the  Republic,  "  Right 
and  duty  walk  side  by  side  in  every  calling,  and  he,  whether 
rich  or  poor,  who  does  not  hear  and  listen  to  both  voices, 
shall  be  for  us  a  social  outcast." 


XXVII 
THE  PUBLIC1 

LESLIE  WILLIS  SPRAGUE 

Society  then  has  a  right  upon  its  prerogative  —  upon  its 
demands  that  what  shall  serve  the  interests  of  any  part  shall 
also  serve  the  interests  of  the  whole.  Society  also  has  the 
advantage  of  being  able  truthfully  to  say  that  whatever 
does  truly  serve  the  interest  of  the  whole  must  inevitably 
serve  the  real  interest  of  any  party.  It  is  society  that  bears 
the  burden  of  this  maladjustment  of  industrial  controversy. 
When  the  street  cars  are  closed  down  in  New  York  City 
because  of  the  strike  of  the  workers  it  is  the  whole  com- 
munity that  walks  and  is  greatly  inconvenienced  in  carrying 
on  its  work.  When  a  railroad  strike  is  imminent  we  begin 
to  wonder  what  will  become  of  the  great  cities  that  are  de- 
pendent upon  the  transportation  facilities  for  their  food. 
All  New  England  is  only  four  days  from  starvation,  and  it 
is  a  very  serious  matter.  If  there  is  to  be  a  railroad  strike 
and  stop  the  transportation  of  food  it  will  be  the  entire 
population  of  New  England  that  will  be  afflicted  by  a 
stopping  of  transportation  facilities  and  not  simply  the  few 
employers  represented  in  the  railroad  corporation  stock. 

1  The  Industrial  Conference  of  the  Interchurch  World  Movement, 
October,  1919. 

335 


336  SOCIAL  UNREST 

When  there  is  a  loss  of  production  by  the  slowing  down 
of  the  industrial  process  by  discord  in  the  plant,  by  a  con- 
troversy with  the  foreman  of  the  management  of  the  cor- 
poration, it  is  society  that  loses  the  production  —  the  burden 
comes  not  upon  the  employer  or  the  employee  alone,  nor 
upon  the  two  of  them  together,  but  the  real  burden  comes 
back  upon  society.  The  burden  of  every  strike  is  borne  in 
the  long  run  by  the  community,  and  in  every  readjustment 
of  labor  conditions  the  assessment  of  the  expense  of  that 
readjustment  is  made  upon  the  public. 

The  public  then  not  only  has  a  right  to  insist  upon  the 
fulfillment  of  obligations  but  it  is  in  duty  bound  to  insist 
that  the  obligations  which  the  employer  and  the  employee 
alike  owe  to  the  community  and  to  the  State  and  to  the 
world  shall  be  fulfilled. 

I  think  that  we  need  to  define  clearly  the  part  that  so- 
ciety takes  in  the  readjustment  and  in  the  relationship  be- 
tween employer  and  employee.  Sometimes  the  public  is 
more  complete  than  at  other  times.  At  all  times  all  are  in- 
cluded in  the  public.  Just  now  in  the  steel  situation  it  is 
only  after  all  a  small  part  of  the  whole  United  States  that 
is  involved  in  the  strike  directly,  and  yet  it  is  the  whole 
United  States  that  is  involved  in  the  one  industry. 

Those  who  are  on  strike,  those  who  are  locked  out,  suffer 
doubly,  directly  in  the  loss  of  the  day  or  the  weeks  of  the 
month's  wages,  indirectly  in  the  increased  cost  of  living. 

During  the  period  of  the  war  we  became  so  that  we 


THE  PUBLIC  337 

nearly  forgot  that  we  belonged  to  ourselves,  that  we  be- 
longed to  groups  within  the  whole,  and  remembering  only 
the  fact  that  we  belonged  to  the  whole  we  were  proud  to  be 
more  than  an  American,  we  were  proud  to  be  also  a  part 
of  the  forces  of  the  Allies.  We  had  little  labor  trouble  dur- 
ing the  war  months,  not  so  much  as  has  been  suggested 
because  of  the  power  of  the  Government  in  the  matter,  as 
because  of  the  recognition  on  the  part  of  employer  and  em- 
ployee that  they  were  public  and  not  private;  that  they  be- 
longed to  the  State  and  to  the  world  and  not  simply  to 
their  own  part  of  the  industrial  organization. 

I  think  if  we  could  bring  the  entire  community  —  every- 
body both  employers  and  employees  and  all  the  rest  to  real- 
ize that  we  are  first  of  all  parts  of  humanity  and  not  first 
of  all  employers  or  employees,  we  would  go  a  long  way 
toward  solving  the  problems  of  the  industrial  unrest. 

If  we  could  make  very  clear  through  right  economic 
teaching  that  we  are,  every  one  of  us,  consumers,  and  that 
our  part  in  society  as  consumers  is  just  as  much  an  economic 
matter  to  us  as  our  part  as  workers,  wage  earners,  or  coupon 
cutters  —  if  we  could  get  the  idea  of  our  membership  in 
society  as  consumers  and  keep  that  by  our  total  relationships 
we  would  go  far  to  help  ameliorate  the  present  emphasis 
which  rests  upon  an  undue  magnifying  of  the  productive 
function. 


XXVIII 
SOCIAL  RIGHTS1 

GEORGE  E.  ROBERTS 

The  labor  question  continues  to  dominate  the  business 
situation  all  over  the  world.  Everywhere  the  efforts  to  re- 
vive productive  industry,  supply  the  pressing  wants  of  the 
population  and  lower  the  exorbitant  prices  which  are  pre- 
vailing, are  embarrassed  by  sudden  strikes,  paralyzing  pro- 
duction and  throwing  transportation  and  trade  into  con- 
fusion. The  strikes  are  all  justified  by  their  promoters  on 
the  ground  that  the  cost  of  living  is  higher.  Each  group 
is  aggrieved  by  a  condition  which  other  groups  hare 
created,  and  heedlessly  and  recklessly  resorts  to  action  which 
increases  the  general  distress  and  confusion. 

Reasoning  people  of  all  classes  must  be  impressed  with 
the  utter  lack  of  any  sense  of  public  responsibility,  or  of 
obligation  to  the  community,  on  the  part  of  many  of  the  per- 
sons and  group  leaders  participating  in  these  strikes.  They 
take  action  which  they  fully  expect  will  work  fearful  hard- 
ships and  injury  to  great  numbers  of  innocent  people,  who 
are  helplessly  involved  as  members  of  the  community,  with- 

1  From  The  Americas,  October,  1919. 

33Q 


340  SOCIAL  UNREST 

out  any  compunctions  whatever.  Moreover,  it  is  strange 
that  the  public  seems  to  be  so  helpless.  Men  deplore  the 
situation,  but  speak  of  it  as  though  it  was  a  necessary  result 
of  a  competitive  society.  It  is  not  competition.  It  is  com- 
bination carried  beyond  bounds,  to  where  it  is  destructive  of 
organized  society. 

Any  policy  which  if  carried  out  freely  will  break  up 
community  life,  disrupt  the  whole  system  of  industry  under 
which  people  rely  upon  exchanges  with  each  other,  and  force 
society  back  into  barbarism  and  anarchy,  may  be  condemned 
without  argument.  There  is  no  room  for  argument. 
There  must  of  necessity  be  such  a  compromise  and  limita- 
tion of  personal  rights  as  will  permit  people  to  co-operate 
in  community  life. 

The  present  state  of  disorder  over  the  world  is  due  to  a 
want  of  comprehension  of  this  fundamental  necessity  for 
community  co-operation,  and  of  the  obligation  that  rests 
upon  each  individual  to  so  govern  his  own  actions  that  he 
will  not  infringe  upon  common  rights  which  are  essential 
to  the  community  life. 

Society  in  its  efforts  to  find  the  most  effective  methods 
of  production  seems  to  have  developed  industry  beyond  the 
comprehension  of  the  population  or  beyond  the  sense  of  in- 
dividual loyalty  or  obligation  to  the  community  of  which 
each  is  himself  a  dependent  part. 

The  railroad  unions  of  Great  Britain  suddenly  shut  down 
traffic,  hoping  to  create  such  .distress  that  the  whole  nation 


SOCIAL  RIGHTS  341 

would  fall  to  its  knees  and  ask  for  the  terms  upon  which 
they  would  relent,  in  order  that  the  population  might  again 
receive  food  and  go  about  earning  a  living.  Such  an 
arbitrary  act  is  nothing  less  than  a  violation  of  a  public 
trust.  The  men  who  operate  the  railroads  do  so  under 
an  implied  social  contract  with  their  fellows  in  the  com- 
munity that  they  will  perform  this  necessary  service  faith- 
fully, in  consideration  for  the  services  constantly  rendered 
by  other  groups  to  them.  The  arrangement  is  voluntary 
but  mutual  in  benefits,  and  since  the  groups  must  depend  on 
each  other,  there  are  mutual  obligations.  Individuals,  in- 
deed, may  withdraw  singly  from  their  places  in  the  organ- 
ization, because  such  changes  ma}'  be  made  without  interrupt- 
ing the  service,  but  a  deliberate  attempt  to  paralyze  a  great 
service  which  is  necessary  to  community  life  cannot  be 
justified.  It  is  taking  advanage  of  a  state  of  dependence  and 
trust  to  impose  terms  by  force. 

To  the  surprise  of  the  British  railroad  operatives  the 
government  hastily  organized  a  service  of  motor  cars  which 
was  successful  in  moving  food  supplies  to  the  great  popula- 
tion of  London  and  other  cities,  so  that  no  calamity  occurred, 
although  the  industrial  losses  were  heavy.  The  vast  laboring 
population  of  London,  including  the  families  of  the  strikers, 
were  saved  from  hunger  by  this  improvised  service.  But  what 
is  to  be  said  of  this  deliberate  attack  upon  community  life  ? 

The  strike  was  settled  by  compromise,  although  the 
government  sustained  itself  very  well. 


342  SOCIAL  UNREST 

A  similar  attack  is  contemplated  by  the  coal  miners  of  this 
country,  who  have  submitted  extraordinary  demands  and 
given  notice  of  their  determination  unless  the  demands  are 
granted,  to  close  up  the  mines  at  the  beginning  of  winter. 
Their  President  has  given  out  a  statement  in  which  he  says, 
in  effect,  that  the  miners  have  sought  very  earnestly  to  have 
their  demands  granted,  and  having  failed,  the  responsibility 
rests  upon  the  employers.  The  miners'  convention  seems  to 
have  tied  the  hands  of  its  officials  by  forbidding  concessions 
or  arbitration.  The  operators  might  avert  a  shut-down 
only  by  accepting  the  terms  named. 

The  whole  world  is  short  of  coal.  England  before  the 
war  was  the  great  coal-exporting  country,  sending  great 
quantities  to  South  America,  France,  Spain  and  Italy.  But 
the  British  mining  unions  have  so  reduced  production  in  that 
country  that  but  little  is  available  for  export.  The  in- 
dustries of  France  and  Italy  are  handicapped  by  the  high 
price  and  short  supply.  Coal  is  selling  at  over  $100  per 
ton  in  Italy  and  is  scarcely  obtainable  at  that.  Factories 
must  shut  down  and  wage-earners  be  thrown  out  of  employ- 
ment for  lack  of  coal.  With  conditions  nearly  desperate  in 
those  countries,  the  lack  of  coal  seems  to  be  the  last  straw. 
American  is  the  only  hope,  and  here  a  shut-down  of  pro- 
duction is  threatened. 

In  this  country  the  consumption  of  coal  is  mainly  direct 
from  the  mines,  so  that  a  cessation  of  mining  means  that  in- 
dustries will  soon  have  to  close  down,  throwing  thousands 


SOCIAL  RIGHTS  343 

out  of  employment,  cutting  off  their  earnings,  and  in- 
creasing all  industrial  costs  when  operations  are  resumed, 
not  to  speak  of  the 'suffering  which  must  result  from  a  short- 
age for  heating  purposes.  Coal  is  one  of  the  necessities  of 
community  life.  The  miners,  of  course,  know  this,  but 
apparently  have  no  other  thought  about  it  than  that  it  affords 
them  the  opportunity  to  make  their  own  terms,  which  in 
this  instance  includes  a  60  per  cent,  increase  of  wages  over 
the  war  rates,  six  hours  of  labor  per  day  and  five  days  per 
week. 

The  shortening  of  time  is  defended  on  the  ground  that  it 
is  necessary  in  order  to  give  regular  employment  to  all  the 
miners  who  have  been  in  the  army  as  well  as  the  men  who 
have  entered  upon  mining  during  the  war.  The  defense 
is  an  offense  against  common  sense  at  a  time  when  so 
many  industries  are  in  need  of  labor  as  they  are  at  this 
time. 

In  short,  a  strike  of  coal  miners  would  be  a  blow  at  the 
community  life.  It  is  like  a  threat  to  pull  down  the  house 
in  which  everybody  lives  unless  some  of  the  residents  will 
yield  to  the  demands  of  others.  A  threat  is  made  to  sac- 
rifice the  common  welfare,  in  the  hope  that  the  other  party 
will  show  more  solicitude  for  that  welfare  than  the  one  who 
threatens.  And  even  that  is  not  a  full  statement,  for  the 
public  welfare  in  this  instance  would  be  gravely  affected  if 
the  demands  were  conceded. 

It   is   natural   to   ask   whether   the   community   has   any 


344  SOCIAL  UNREST 

means  of  protecting  itself  in  an  emergency  of  this  kind. 
Does  it  concede  the  right  of  the  workers  who  happen  to  be 
employed  in  mining  coal  to  control  the  supply  of  coal  for 
everybody  and,  by  arrangement  among  themselves,  shut  it 
off  unless  their  demands  are  acceded  ? 

Here  again,  far  more  is  involved  than  the  right  of  indi- 
viduals to  seek  their  own  personal  welfare.  The  combined 
action  would  be  an  attempt  to  take  an  unwarranted  ad- 
vantage of  a  relationship  which  the  miners,  through  no 
special  merit  of  their  own,  happen  to  hold  to  the  com- 
munity. It  is  not  to  be  regarded  as  merely  a  controversy 
between  employers  and  employees.  The  rights  of  the  com- 
munity are  paramount,  and  where  that  is  the  case  the  public 
must  be  privileged  to  act  in  whatever  manner  may  be  neces- 
sary to  protect  the  common  welfare.  The  right  of  in- 
dividuals to  combine  and  promote  their  private  interests  never 
can  be  maintained  over  the  rights  of  the  entire  community. 

These  are  fundamental  principles,  based  upon  the  moral 
law  which  must  govern  the  relations  between  men  in  com- 
munity life.  The  moral  law  is  also  the  economic  law.  In 
the  long  run,  public  opinion  will  recognize  that  it  is  the  law 
of  social  necessity,  and  must  govern.  Social  progress  is  made 
as  people  become  sufficiently  enlightened  to  understand  and 
agree  upon  the  conditions  which  are  necessary  to  harmonious 
and  effective  co-operation.  And  as  the  process  of  enlighten- 
ment is  individual  and  voluntary,  there  is  always  ground  for 


SOCIAL  RIGHTS  345 

doubting  the  efficacy  of  legislation  to  coerce  either  employers 
or  employees.  Their  minds  must  meet  to  really  achieve  the 
desired  results. 

It  may  be  added,  however,  that  capital  has  long  since  been 
brought  under  subjection  to  the  public  interest.  Wher- 
ever an  investment  is  "affected  of  a  public  use,"  or  holds 
a  monopolistic  position  which  enables  it  to  dictate  terms 
to  the  public  for  necessary  services,  it  is  subject  to  regulation 
and  control. 

The  present  critical  state  of  industry  compels  careful 
examination  of  the  leadership  and  objectives  of  the  labor 
organizations.  These  organizations  are  more  aggressive 
than  ever  in  increasing  their  membership  and  extending 
their  influence.  They  are  appealing  for  popular  sympathy 
and  support,  and  it  is  a  fair  question  how  they  propose  to  use 
the  new  powers  they  are  seeking. 

This  is  not  questioning  the  right  of  organization,  or  the 
propriety  of  collective  bargaining.  In  the  abstract  these 
are  not  in  dispute,  but  after  they  are  conceded,  there  remains 
the  very  pertinent  question,  whether  the  ideas  and  leadership 
now  dominant  in  organized  labor  are  making  for  harmony 
and  efficiency  in  industry  or  against  it?  It  is  a  practical 
question  whether  the  public  interest  will  be  served  at  this 
time  by  having  industry  brought  more  completely  under  the 
power  of  these  organizations.  Are  they  showing  the  con- 
sideration for  public  interests  and  the  understanding  of 


346  SOCIAL  UNREST 

economic  principles  which  ought  to  govern  at  all  times,  and 
especially  in  this  time  of  world  emergency  ? 

The  public  should  not  take  sides  with  Capital  or  Labor 
as  such.  It  should  hold  a  dominating  position  over  both, 
and  require  that  in  all  efforts  to  promote  their  own  interest 
they  confine  themselves  to  policies  which  are  not  prejudicial 
to  the  general  public  interests.  The  chief  public  interest  is 
in  the  progress  of  industry,  constant  improvement  of  the 
methods  of  production  and  an  increasing  output  of  all  things 
that  minister  to  the  comfort  of  the  masses  of  the  people. 
That  is  the  sure  way  and  the  only  way  of  social  pro- 
gress. 

One  may  accept  organized  labor  as  an  established  factor 
in  industry  as  most  employers  do,  whether  they  like  it  or 
not,  and  even  accept  and  approve  labor  organizations  as 
necessary  to  preserve  the  equilibrium  between  the  industrial 
forces,  and  still  question  the  advisability  of  having  these 
organizations  established  in  a  more  dominant  position  than 
they  hold  now,  or  strengthened  by  further  legislative 
enactments. 

It  is  desirable  that  every  influence  that  seeks  a  dominating 
position  in  the  social  organization  should  be  required  to 
justify  its  policies  from  day  to  day,  and  show  a  proper  re- 
spect for  public  opinion.  For  its  own  guidance  and  de- 
velopment, so  much  of  challenge  and  criticism  is  necessary, 
and  it  is  well-warranted  criticism  to  say  that,  in  this  epidemic 
of  strikes  which  is  raging,  with  a  general  effort  to  shorten 


SOCIAL  RIGHTS  347 

hours  and  curtail  production  at  a  time  when  the  interests 
of  the  great  body  of  consumers  require  larger  production, 
organized  labor  is  not  showing  a  proper  consideration  for 
public  opinion  or  the  public  welfare. 

This  is  the  fact  which  looms  up  at  the  present  time  above 
all  the  abstract  and  sentimental  arguments  for  the  right  of 
collective  bargaining,  etc.  In  many  instances  the  regular 
union  authorities  have  lost  the  control  which  belongs  to 
them  under  the  rules  of  the  organizations.  In  New  York 
the  pressmen's  unions  are  in  rebellion  against  their  supreme 
authority,  and  practically  all  magazine  and  book  printing 
is  suspended.  The  dock  workers  of  New  York  and  other 
cities  along  the  coast  have  gone  out  on  a  strike  which  their 
responsible  officers  acknowledge  to  be  in  violation  of  their 
signed  agreement.  This  means  that  more  radical  leaders 
have  seized  control  and  are  using  the  organizations. 

This  lack  of  responsibility  in  the  organizations,  indif- 
ference to  agreements,  conflicts  of  jurisdiction,  which  often 
cause  costly  interruptions  of  work  through  no  fault  of  the 
employer  and  general  indifference  to  everything  but  their  own 
wants,  are  what  cause  employers  to  fear  the  power  of  the 
unions.  They  are  reluctant  to  place  their  works  under  such 
control,  and  why  should  the  public  blame  them  or  side 
against  them?  The  public  is  interested  in  having  peace  in 
industry.  Existing  conditions  do  not  afford  a  fair  basis  for 
the  claims  of  the  unions  upon  the  sympathies  and  support  of 
the  public.  They  need  to  clean  house  and  develop  in  their 


348  SOCIAL  UNREST 

membership  a  higher  sense  of  social  responsibility  in  the  use 
of  power  before  asking  the  public  to  help  them  obtain  more 
of  it. 

This  is  simply  an  application  of  the  common  law  ruling 
throughout  society,  that  individuals  and  organizations  shall 
justify  their  claims  and  aspirations  to  higher  trusts  and  re- 
sponsibilities by  the  manner  in  which  they  deport  themselves 
in  the  trusts  that  have  been  confided  to  them. 

There  need  be  no  trouble  about  collective  bargaining,  or 
shop  councils,  or  profit-sharing  co-operation,  or  any  of  the 
other  conditions,  or  alleviating  remedies  which  are  sug- 
gested, provided  the  spirit  of  co-operation  is  shown  by 
all  parties.  But  first  of  all,  there  must  be  agreement  upon 
the  main  purpose  to  be  accomplished,  which  is  to  obtain 
the  largest  practicable  production. 

There  are  intelligent  labor  leaders  who  recognize  this. 
Secretary  W.  B.  Wilson,  of  the  Department  of  Labor,  in 
his  opening  address  to  the  Industrial  Conference  summed 
up  the  case  admirably  when  he  said : 

"  If  wages  are  increased  and  profits  remain  the  same,  the 
burden  is  passed  on  to  the  consuming  public  in  the  form 
of  an  increased  cost  of  living,  and  comes  back  in  that  form 
to  the  wage  worker  himself.  No  portion  of  improved  living 
standards  can  come  out  of  the  profits  of  the  employers  unless 
there  is  profiteering." 

Unfortunately,  these  men  are  unable  to  control  the  organ- 
izations. The  machinery  is  taken  in  hand  by  others.  A 


SOCIAL  RIGHTS  349 

great  educational  work  remains  to  be  done  before  the  unions 
are  guided  by  such  men  as  Secretary  Wilson,  but  the  de- 
mand is  for  more  power  immediately. 

The  common  testimony  of  employers  is  that,  with  shorter 
hours  and  higher  pay,  efficiency,  instead  of  improving, 
actually  diminishes.  The  trouble  is  that  the  spirit  of  co- 
operation is  wanting;  the  will  to  increase  production  is 
wanting.  There  may  be  skepticism  as  to  statements  of  this 
kind  from  employers  but  there  is  impartial  testimony  which 
cannot  be  discredited.  Professor  William  Z.  Ripley,  of 
Harvard  University,  chairman  of  the  National  Adjustment 
Commission  of  the  United  States  Shipping  Board,  which  has 
"  adjusted  "  the  wages  of  longshoremen  until  they  are  70 
cents  an  hour  for  8  hours,  and  $1.10  for  overtime,  against 
33  cents  in  1914,  in  a  statement  to  the  International  Long- 
shoremen's Association,  said :  "  As  wages  have  gone  up 
productiveness  has  gone  down,  with  the  result  that  the 
direct  cost  of  turning  a  ship  round  at  Atlantic  ports  is  at 
least  three  times  what  it  was  in  1914,"  a  condition  he  said 
that  "  was  absolutely  ruinous  "  and  if  not  corrected  would 
make  the  creation  of  a  great  American  merchant  marine 
impossible. 

It  is  to  be  freely  granted  that  the  root  of  the  trouble  is  in 
the  wide-spread  belief  that  the  wage-earners  have  not 
received  a  fair  share  of  the  product  of  their  labors,  but  this 
recognition  does  not  justify  concessions  which  will  only 
lead  to  greater  confusion  and  disappointment.  It  is  certain 


350  SOCIAL  UNREST 

that  industry  must  be  directed  in  accordance  with  economic 
law,  and  that  no  policy  which  conflicts  with  it  can  produce 
any  benefits.  If  we  have  indeed  developed  our  industrial 
system  beyond  the  ability  of  the  population  to  comprehend  it, 
and  our  population  has  increased  beyond  the  possibility  of  its 
finding  a  living  by  a  more  primitive  system  of  industry, 
the  outlook  is  dark  indeed. 

But  we  should  take  a  more  hopeful  view,  and  confidently 
teach  the  doctrine  that  the  natural  laws,  by  means  of  which 
the  human  race  has  achieved  all  the  progress  of  the  past,  are 
still  trustworthy  and,  if  allowed  to  function  without  ignorant 
interference,  will  continue  to  improve  the  conditions  of  life 
(or  all. 


XXIX 
GOODWILL  TO  MEN 

JOHN  R.  COMMONS 

Goodwill  is  productive,  not  in  the  sense  that  it  is  the 
scientific  economizing  of  the  individual's  capacities,  but  be- 
cause it  enlists  his  whole  soul  and  all  his  energies  in  the 
thing  he  is  doing.  It  is  that  unknown  factor  pervading  the 
business  as  a  whole,  which  cannot  be  broken  up  and  meas- 
ured off  in  motions  and  parts  of  motions,  for  it  is  not  science 
but  personality.  It  is  the  unity  of  a  living  being  which  dies 
when  dissected.  And  it  is  not  even  the  personality  of  a 
single  individual,  it  is  that  still  more  evasive  personality  to 
which  the  responsive  French  give  the  name,  I'esprit  de  corps, 
the  spirit  of  brotherhood,  the  solidarity  of  free  personalities. 

It  is  this  corporate  character  of  goodwill  that  makes  its 
value  uncertain  and  problematical.  A  corporation  is  said 
to  have  no  soul.  But  goodwill  is  its  soul.  A  corporation 
owns  its  goodwill,  and  the  value  of  goodwill  is  reflected  in 
its  stocks  and  bonds.  It  is  the  soul  of  a  going  concern,  the 
value  of  the  unity  and  collective  personality  that  binds  to- 
gether all  its  parts  in  a  living  organism. 

It  is  this  unmeasured  quality  of  goodwill  that  scientific 
3Si 


352  SOCIAL  UNREST 

managers  are  feeling  after  when  they  explain  the  breakdown 
of  scientific  management.  Mr.  Taylor  explains  it  by  say- 
ing that  employers  are  too  hasty  for  profits  and  are  not 
willing  to  wait  for  the  slow  and  patient  work  of  science. 
Mr.  Hoxie  points  out  that  of  the  thirty  or  forty  establish- 
ments picked  out  by  scientific  managers  and  recommended  to 
him  for  investigation  only  two  or  three  had  carried  out  com- 
pletely the  patient  trials,  tests,  experiments,  upon  wyhich 
alone  can  science  be  called  scientific.  Before  time-and-mo- 
tion  studies  are  even  begun  with  the  workmen,  two  or  three 
years  may  be  needed  to  bring  about  the  proper  engineering 
revision  of  the  physical  plant.  Not  until  that  is  accom- 
plished is  the  truly  scientific  manager  ready  to  enter  the 
field  of  labor's  habits,  traditions,  prejudices  and  old-fash- 
ioned ways  of  doing  things. 

Even  then,  the  expert  is  only  an  adviser.  He  is  an  out- 
sider without  authority.  It  is  the  employer  who  installs 
the  devices  and  controls  their  use.  So,  scientific  managers 
reach  the  point  where  they  instruct,  not  the  workman,  but 
the  employer.  They  urge  him  to  give  to  the  scientific  man 
authority  in  his  establishment.  The  employer  should  give 
up  his  desire  for  immediate  profits  and  should  abdicate  in 
favor  of  the  scientific  engineer.  The  autocratic  method 
breaks  down  at  the  point  where  profits  without  science  take 
control  of  the  worker. 

It  is  this  that  stands  in  the  way  of  any  automatic  solution 
of  the  labor  problem  that  the  engineer  may  devise.  He  caa 


GOODWILL  TO  MEN  353 

fashion  a  machine  or  lay  out  a  factory  and  then  go  away  and 
leave  it  to  work  according  to  its  inherent  forces.  So  he 
fixes  up  a  scheme  of  nicely  adjusted  measurements  and  in- 
ducements by  which  he  expects  the  human  machine  to  turn 
out  a  product.  Then  he  goes  away  and  leaves  it  to  the 
employer  to  operate,  in  confidence  that  he  has  invented  an 
automatic  solution  of  the  labor  problem. 

This  might  suffice  if  he  could  tie  up  the  worker  by  a 
contract  that  would  hold  him  to  work,  no  matter  what 
changes  subsequently  occur.  But  the  labor  contract  is  not 
automatic  and  is  not  enforceable  according  to  specifications. 
It  is  a  new  contract  every  day  and  every  hour.  It  is  the 
only  contract  that  is  not  sacred.  If,  when  a  man  is  hired 
for  a  period  of  time,  he  could  be  compelled  to  fulfill  his 
contract,  the  result  would  be  involuntary  servitude.  On  the 
other  hand,  if  an  employer  is  compelled  to  keep  a  man  ac- 
cording to  contract,  then  the  employer  might  be  compelled 
to  have  on  his  hands  a  man  not  suited  to  his  work  or  not 
willing  to  work.  So,  in  the  last  forty  years,  since  the  Thir- 
teenth Amendment  to  the  Constitution,  the  labor  contract 
has  become  universally,  except  in  the  case  of  certain  pro- 
fessional services,  a  contract  terminable  at  will  without  dam- 
ages collectible  in  court.  The  workman  can  be  fired  at 
any  hour  of  the  day  and  he  can  quit  at  any  hour,  regardless 
of  what  promise  has  been  made  and  without  a  legal  penalty. 
So  the  labor  contract  is  new  at  every  turn  of  the  work  that 
is  being  done.  The  laborer  is  bargaining  while  he  is  work- 


354  SOCIAL  UNREST 

ing,  and  his  tacit  offer  to  the  employer  is  the  amount  of  work 
he  is  turning  out.  If  the  employer  accepts  the  offer  he 
keeps  him  at  work.  If  the  employer  wants  a  different  con- 
tract the  old  one  is  already  terminated  by  the  very  words 
that  suggest  a  change  in  the  amount  of  work. 

Scientific  managers  have  sometimes  tried  to'  meet  this  situ- 
ation by  stipulating  that  prices  and  premiums  once  set  shall 
never  be  changed.  But  this  is  impossible,  and  such  a  prom- 
ise must  be  broken.  Good  faith  may  possibly  be  kept  with 
a  certain  individual  even  though  he  may  double  and  treble 
his  wages  unexpectedly.  Even  that  is  unlikely.  When  he 
leaves  his  job,  when  another  takes  his  place,  when  unem- 
ployment breaks  the  connection,  the  moral  obligation  may  be 
deemed  fulfilled.  A  new  contract  is  made,  a  different  price 
is  set.  The  individual  promise  may  not  be  violated  but  the 
contract  changes  with  individuals.  The  promise  made  to 
one  does  not  hold  with  his  successor,  nor  even  with  him  if 
the  job  changes. 

Generally,  instead  of  a  promise  that  the  price  shall  never 
be  changed  the  promise  is  made  that  it  shall  hold  for  a  year. 
This  is  about  as  far  as  the  promise  can  go.  Even  then,  the 
daily  work  and  wages  are  the  tacit  offers  made  in  advance 
and  in  contemplation  of  their  effect  on  the  new  bargain 
when  it  comes  to  be  made.  There  must  be  a  change  sooner 
or  later.  Industry  is  improving,  and  if  no  change  is  made 
in  the  contract,  the  worker  gets  the  sole  benefit  of  progress 
at  the  expense  of  capital  or  the  consumer.  On  the  other 


GOODWILL  TO  MEN  355 

hand,  competition  forces  the  employer  to  cut  the  rates  or  go 
out  of  business. 

So,  for  these  reasons,  an  automatic  system  designed  as  an 
ultimate  solution  to  wind  up  the  labor  problem  and  let  it 
work  itself  out  is  impossible.  The  labor  problem  is  a  daily 
trial  of  strength.  The  socialists  call  it  a  class  struggle.  It 
is  a  continuous  bargain  every  day  and  hour,  renewed  either 
in  the  prices  that  are  to  be  paid  or  the  amount  of  product 
that  the  worker  turns  out.  And  it  is  this  very  renewal  of 
bargains  that  constitute  goodwill  in  law  and  in  fact. 

Goodwill  is  the  offspring  of  liberty  and  grows  in  impor- 
tance as  liberty  enlarges.  The  slave-owner  does  not  depend 
on  goodwill,  else  he  would  emancipate  his  slaves.  When 
the  labor  contract  was  enforced  in  law,  the  crime  of  running 
away  was  the  employer's  substitute  for  goodwill.  And  if 
the  employer's  competitors  do  not  have  access  to  his  labor- 
ers, in  order  to  give  them  information  about  alternative 
offers,  it  is  not  their  goodwill  that  he  depends  upon,  but 
their  ignorance. 

For  goodwill  is  competitive  persuasion.  It  is  knowledge 
of  alternatives  and  freedom  to  choose  them  without  penalty 
or  sacrifice.  If  there  are  no  alternatives,  or  no  knowledge 
of  them,  there  is  no  goodwill.  In  prosperous  times,  when 
alternatives  are  numerous,  the  turnover  increases.  In  hard 
times  it  is  reduced.  In  prosperous  times,  too,  the  workers 
reduce  their  output.  In  hard  times  they  work  harder.  And 
this  is  the  curious  paradox  of  modern  industry  and  of  the 


356  SOCIAL  UNREST 

supply-and-demand  theory  of  labor,  that  in  hard  times  when 
there  is  already  an  overproduction  of  products  relative  to 
demand,  the  workers  still  further  increase  the  overproduction 
by  working  harder;  while  in  good  times  when  demand  out- 
runs supply,  the  workers  intensify  the  undersupply  by  still 
further  reducing  output.  The  manufacturer  or  merchant  re- 
duces his  output  when  there  is  an  oversupply  on  the  market, 
but  the  wage-earner  increases  his,  and  vice  versa.  Com- 
menting on  this  situation  during  a  period  of  prosperity,  a 
great  employer  once  said  to  me,  "  Yes,  these  fellows  will  not 
work  now,  but  hard  times  will  come  and  then  we"  will  soak 
them."  With  such  a  theory  and  such  conditions  it  is  fear 
rather  than  goodwill,  retaliation  rather  than  reciprocity,  ser- 
vility rather  than  freedom,  that  governs  labor's  production 
of  wealth.  Scientific  management  has  made  a  great  ad- 
vance away  from  this  commodity  theory  and  its  results.  To 
the  scientific  study  of  goodwill  and  labor  turnover  we  must 
look  for  a  still  greater  advance. 

For  goodwill  is  coming  to  be  an  intangible  asset  of  busi- 
ness more  valuable  than  the  tangible  properties.  It  is  the 
/ife  of  a  going  concern.  Business  goodwill,  commercial 
goodwill,  trade  name,  trade  reputation,  trade  marks,  often 
exceed  in  value  the  physical  plant  and  the  inventory  of  stock 
on  hand.  Goodwill  is  valuable  because  it  lifts  the  business 
somewhat  above  the  daily  menace  of  competition  and  en- 
ables it  to  thrive  without  cutting  prices.  And  what  is  "  good 
credit  "  but  the  goodwill  of  bankers  and  investors? 


GOODWILL  TO  MEN  357 

So  industrial  goodwill  is  a  valuable  asset  like  commercial 
goodwill  and  good  credit,  and  becomes  so,  more  and  more, 
in  proportion  as  laborers  acquire  more  liberty,  power,  intelli- 
gence, and  more  inclination  to  assert  their  liberties.  It  too 
is  valuable  because  it  brings  larger  profits  and  lifts  the  em- 
ployer somewhat  above  the  level  of  competing  employers  by 
giving  him  a  more  productive  labor  force  than  theirs  in  pro- 
portion to  the  wages  paid.  And  this  larger  profit  reflects 
itself  in  the  larger  value  of  stocks  and  bonds,  the  higher  cap- 
italization of  the  going  business.  Goodwill  is  the  expecta- 
tion of  future  profit,  and  whether  it  be  the  commercial 
goodwill  of  patrons  and  customers,  or  the  credit  goodwill 
of  bankers  and  investors,  or  the  industrial  goodwill  of  la- 
borers, it  has  its  present  market  value,  sometimes  greater 
than  the  value  of  all  the  tangible  property  of  the  business. 
Indeed,  without  goodwill,  the  tangible  property  is  a  liabil- 
ity rather  than  an  asset. 

But  goodwill  is  fragile  as  well  as  intangible.  It  is  not 
merely  past  reputation,  it  requires  continuous  upkeep  through 
continuous  repetition  of  service.  It  breaks  down  easily  by 
deterioration,  for  it  is  built  up  on  the  most  fragile  of  as- 
sets, the  freedom  of  the  will  of  patrons  or  workers.  It 
cannot  be  wound  up  and  allowed  to  run  itself  like  a  ma- 
chine. It  is  not  an  exclusive  monopoly  protected  by  law 
like  a  patent  right.  It  is  not  even  a  contract  enforceable  in 
law.  It  is  just  the  intangible  chance  of  making  a  contract 
if  you  can.  It  is  menaced  by  competitors  who  are  perhaps 


358  SOCIAL  UNREST 

just  as  free  and  able  as  the  owner  to  build  up  their  own 
goodwill  by  making  contracts,  and  only  the  employer  who 
seriously  appreciates  the  increasing  importance  of  this  as- 
pect of  the  labor  market  will  meet  successfully  either  the 
counter-inducements  of  his  competitors  or  the  growing  de- 
mands of  the  public  that  supports  the  cause  of  labor. 

For  it  is  goodwill  that  converts  the  "  class  struggle  "  of 
socialism  into  class  harmony.  It  converts  retaliation  into 
reciprocity.  Where  it  does  not  exist,  there  the  public,  more 
and  more,  is  turning  to  another  theory  not  merely  the  good- 
will theory  of  labor  but  the  public-utility  theory  of  labor.1 

*"  Industrial  Goodwill":  pp.  19-27.  Reprinted  by  courtesy  of 
the  McGraw-Hill  Book  Company. 


THE  EDITOR 

The  shot  fired  at  Sarajevo  almost  everywhere  halted  social 
and  industrial  discussion.  With  the  world  afire  the  dispo- 
sition passed  for  capital  to  speak  of  "  meddlesome  interfer- 
ence," and  labor  either  declared  a  truce  —  as  in  England  — 
or  —  as  in  this  country  under  the  leadership  of  Mr.  Gom- 
pers  —  at  once  came  wholeheartedly  to  the  defence  of  civili- 
zation. Chambers  of  Commerce  and  other  bodies  represen- 
tative of  business  opinion  registered  with  singular  accuracy 
the  transformation  of  bad  business  into  "  bad  form."  Rich 
and  poor,  management  and  public  alike,  placed  their  serv- 
ices and  their  time  at  the  disposition  of  the  Government. 
The  ground  was  cleared  for  the  building  of  that  new  world 
"where"  —to  quote  Mr.  Lloyd  George—  "labor  shall 
have  its  just  reward  and  indolence  alone  shall  suffer  want." 
This  volume  therefore  has  served  its  purpose  if  by  setting 
forth  some  representative  thinking  it  has  pointed  the  way 
from  the  old  world  to  the  new  and  also  cleared  the  ground 
for  consideration  in  a  subsequent  volume  of  some  problems 
which  are  pressing  for  solution  now  that  war  is  done.  Out 
of  the  total  only  a  few  problems  of  an  illustrative  character 
could  be  selected. 

350 


360  SOCIAL  UNREST 

[Recently  the  Premier  of  England  addressed  to  the  people 
of  Great  Britain,  through  "  The  Future"  a  national  publi- 
cation issued  for  free  distribution,  the  following  message ;] 

"  Millions  of  gallant  young  men  have  fought  for  the  new 
world.  Hundreds  of  thousands  died  to  establish  it.  If  we 
fail  to  honor  the  promise  given  them,  we  dishonor  ourselves. 

"  What  does  the  new  world  mean?  What  was  the  old 
world  like?  It  was  a  world  where  toil  for  myriads  of  hon- 
est workers,  men  and  women,  purchased  nothing  better  than 
squalor,  penury,  anxiety,  wretchedness;  a  world  scarred  by 
slums,  disgraced  by  sweating,  where  unemployment,  through 
the  vicissitudes  of  industry,  brought  despair  to  multitudes  of 
humble  homes;  a  world  where,  side  by  side  with  want,  there 
was  waste  of  the  inexhaustible  riches  of  the  earth,  partly 
through  ignorance  and  want  of  forethought,  partly  through 
intrenched  selfishness. 

"  //  we  renew  the  lease  of  that  world,  we  shall  betray 
the  heroic  dead.  We  shall  be  guilty  of  the  basest  perfidy 
that  ever  blackened  a  people's  fame.  Nay,  we  shall  store 
up  retribution  for  ourselves  and  children. 

"  The  old  world  must  and  will  come  to  an  end.  No 
effort  can  shore  it  up  much  longer.  If  there  be  any  who 
feel  inclined  to  maintain  it,  let  them  beware  lest  it  fall  upon 
them  and  overwhelm  them  and  their  households  in  ruin." 

It  should  be  the  sublime  duty  of  all,  without  thought  of 
Partisanship,  to  help  in  the  building  up  of  the  new  world, 
where  labor  shall  have  its  just  reward  and  indolence  alone 
shall  suffer  want." —  LLOYD  GEORGE. 

"In  the  old  days  the  common  ambition  of  every  simple 
soul  was  to  possess  a  little  property,  a  patch  of  land,  a  house 
uncontrolled  by  others,  an  "  independence"  as  the  English 
used  to  put  it.  And  what  made  this  desire  for  freedom 
end  property  so  strong  was  very  evidently  the  dream  of  self- 


SOCIAL  UNREST  361 

expression,  rf  doing  something  with  it,  of  playing  with  it, 
of  making  a  personal  delight  fulness,  a  distinctiveness.  Prop- 
erty was  never  more  than  a  means  to  an  end,  nor  avarice 
more  than  a  perversion.  Men  owned  in  order  to  do  freely." 
— H.  G.  WELLS. 

"  It  is  hardly  too  much  to  say  that  if  Great  Britain 
should  lapse  into  disorder  for  one  weak  moment  the  whole 
future  of  civilization  would  depend  on  one  country,  and  one 
alone  —  the  United  States  of  America" — ALFRED  NOYES. 

"The  war  is  over,  but  the  perils  of  democracy  seem  as 
great  in  1919  as  they  did  in  1917." — ARTHUR  T.  HADLEY. 

"  Always  there  are  strains  not  yet  relieved  and  the  more 
rapidly  society  evolves  the  more  of  these  strains  there  are. 
It  ought  to  help  us  to  keep  our  tempers  if  we  recognize  that 
for  much  suffering  no  one  is  to  blame.  You  cannot  lay  it 
to  persons,  it  is  simply  a  by-product  of  social  evolution. 
The  bulk  of  Americans  will  understand  this." —  EDWARD 
ALSWORTH  Ross. 

"  America  is  doing  a  wonderful  work,  in  many  quarters, 
to  bring  about  a  solution  of  the  labor  problem  in  peace  and 
by  means  of  fairness,  co-operation  and  a  regard  of  moral 
values." —  CHARLES  CESTRE  of  the  Sorbonne  who  completed 
in  October  a  study  of  industrial  conditions  throughout  the 
United  States. 

"It  is  to  be  hoped  that  out  of  the  extreme  suffering  and 
sacrifice  that  this  war  imposes  there  may  arise  supreme  wis- 
dom among  the  nations.  Either  there  will  be  a  new  day  or 
a  darker  night.  We  owe  it  to  ourselves,  to  humanity  and 
to  the  world  to  lend  our  best  efforts  and  to  make  our  fullest 


362  SOCIAL  UNREST 

contribution   to   that  reconstruction   which   must   come" — 
OSCAR  S.  STRAUS. 

"  We  stand  in  a  position  to  be  of  the  greatest  usefulness 
to  the  world,  and  if  we  are  useful  we  need  not  worry  about 
our  recompense." —  FRANK  A.  VANDERLIP. 

"It  is  but  dawn  in  the  new  day  of  spiritual  awakening. 
Let  us  touch  those  who  still  sleeping  wear  the  joy  of  youth 
upon  their  faces  and  say,  with  the  prophet  of  old:  Arise, 
shine;  for  the  light  is  come,  and  the  glory  of  the  Lord  is 
risen  upon  thee' " —  WILLIAM  ALLEN  WHITE. 

"  America  has  moved  out  of  its  old  isolation  into  the  realm 
of  world  affairs.  The  program  of  the  Church  must  match 
the  policy  of  the  nation  if  the  Church  is  to  continue  as  a 
world  force." —  S.  EARL  TAYLOR. 

"  Only  religion  can  kill  war,  for  religion  alone  creates  the 
new  heart." —  HARRY  EMERSON  FOSDICK. 

"  /  do  not  know  any  way  to  create  a  moral  passion  in  a 
free  people  except  through  the  Church." —  HERBERT 
HOOVER. 

"  We  are  at  the  beginning  of  an  age  in  which  it  will  be 
insisted  that  the  same  standards  of  conduct  and  of  responsi- 
bility for  wrong  done  shall  be  observed  among  nations  and 
their  Governments  that  are  observed  among  the  individual 
citizens  of  civilized  states" — The  President's  Message  of 
April  2,  1917. 

"  There  is  a  new,  awakened  world.  It  is  not  ahead  of 
us,  but  around  us." — To  The  French  Senate,  January  20, 
1919. 


SOCIAL  UNREST  363 

"  We  cannot  hastily  and  overnight  revolutionize  all  the 
processes  of  our  economic  life.  We  shall  not  attempt  to  do 
so.  These  are  days  of  deep  excitement  and  of  extravagant 
speech;  but  with  us  these  are  things  of  the  surface.  Every- 
one who  is  in  real  touch  with  the  silent  masses  of  our  great 
people  knows  that  the  old  strong  fibre  and  steady  self-control 
are  still  there.  .  .  .  I  am  serenely  confident  that  they  will 
readily  find  themselves,  no  matter  what  the  circumstances." — 
Address  to  Congress,  August  8,  1919. 

"  The  swing  of  our  destiny  has  at  last  become  as  wide  as 
the  horizon." 

[The  last  four  selections  from  the  addresses  of  Woodrow 
Wilson  would  seem  a  fitting  climax  to  the  series  of  quota- 
tions reflecting  American  opinion.] 


DATE  DUE 


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